Published 10 Feb.2020 15:03(KST)
Updated 24 Apr.2020 07:09(KST)
[Asia Economy Reporter Lim Jeong-su] It is drawing attention whether Techross, an affiliate of Bubang Group, can expand its water treatment and waste management business with the strong backing of orders from the broader LG Group. Bubang is broadly classified as part of the extended LG family, as Group Chairman Lee Dong-geon is the son-in-law of GS Caltex Chairman Heo Dong-soo. Last year, after acquiring water treatment-related companies Techross Water & Energy (formerly LG-Hitachi) and Techross Environmental Services (formerly High Entech) from LG Group, Bubang accelerated its related business.
◆ Growth Based on LG Group Orders... Continued Expectations for Support from the Extended LG Family
Techross acquired 100% stakes in Techross Water & Energy and Techross Environmental Services last year. After the transition to Chairman Koo Kwang-mo’s leadership, LG Group sold these two companies to Bubang to resolve internal order concentration and restructure business units. This transaction ended the affiliate relationship between LG Group and the two companies. However, LG Group is still regarded as a strong supporter of these companies.
Techross Water & Energy was established in 2012 as a joint venture between LG Electronics (51%) and Hitachi (49%) specializing in water treatment. It holds the top domestic market share (21.3%) in the water treatment EPC (Engineering, Procurement, and Construction) sector. There is a significant gap in market share compared to second-tier competitors such as Hanseong Cleantec (5.0%), Huvis Water (4.4%), and Hansu Technical (3.9%).
The overwhelming market dominance is attributed to handling LG affiliate orders and leveraging its oligopolistic position in the water treatment sector. Orders related to LG Display’s Paju plant caused sales to surge from around 70 billion KRW in 2015 to 400 billion KRW within 2-3 years. Annual net profit also exceeded 20 billion KRW.
Recently, due to LG Display’s reduced investments, order volume sharply declined starting last year. In response, Techross Water & Energy secured orders worth 26 billion KRW from LG Chem. Of the 46.2 billion KRW in new orders from January to May last year, 33 billion KRW came from LG Group affiliates, maintaining a high proportion of LG Group orders.
Techross Environmental Services also heavily depends on LG Group. Founded in 1999 under the corporate name 'Malgeunmuljikimi' (Clean Water Keeper), it specializes in water treatment and waste management operations (O&M). It became an LG Electronics subsidiary in 2011 and changed its name to High Entech.
Before being acquired by Techross last year, the company grew based on LG Group orders. It operated wastewater treatment facilities on consignment at LG Electronics plants in Changwon, Gumi, and Pyeongtaek; the Yangjae R&D center; LG Display plants in Paju and Gumi; LG Chem’s Paju plant; and SK Siltron (formerly LG Siltron) Gumi plant. Its annual order volume reached 500 billion KRW in 2018.
The extended LG family is expected to continue supporting these two companies. Since LG Group sold all related companies, there is no affiliate within the group dedicated to water treatment and waste management. Moreover, these two companies have accumulated know-how tailored to industry characteristics such as semiconductors, displays, and petrochemicals through long-term handling of LG Group orders. Therefore, it is widely analyzed that it will be difficult for other companies to enter the market beyond existing clients.
There is also high anticipation for orders from GS Group affiliates. An industry insider said, "Bubang is related by marriage to GS Group, and GS Group is recently expanding its water treatment business," adding, "We are paying attention to the potential business linkage between GS Group affiliates and Bubang affiliates."
◆ 'Alpha' Growth in Private Orders and Government-Commissioned Projects
Orders beyond LG Group affiliates are also increasing.
Techross Water & Energy is currently undertaking EPC for the Kimcheon waste resource energy facility, led by GIK Investment. It is also increasing private investment project orders, such as securing the order for the fluidized bed incinerator facility commissioned by Clean Country with an investment of 24.9 billion KRW.
Techross Environmental Services is expanding orders for wastewater and waste treatment commissioned by the government or local governments to the private sector. It has built a track record by handling waste incineration, drying, and fuel conversion for over ten local governments nationwide, including Seoul, Bucheon, and Yangsan. New government and local government commissioned orders exceeded 100 billion KRW in 2018, up from around 50 billion KRW in 2016.
Both companies also undertook EPC and operation of waste treatment facilities promoted by Yeonggwang Combined Heat and Power Plant. An investment banking (IB) industry insider said, "While industrial waste generation continues to increase, it is difficult to expand related facilities due to local community opposition, resulting in a supplier-favored market," and predicted, "Techross affiliates will continue to increase orders not only from LG Group but also from other sources."
© The Asia Business Daily(www.asiae.co.kr). All rights reserved.