STX Buys a Cruise Ticket

SEOUL, South Korea -- In a sign that South Korea's booming shipbuilders are diversifying, STX Shipbuilding Co. said it bought 39.2% of Aker Yards ASA, a Norwegian builder specializing in cruise ships, for $800 million.

For STX Shipbuilding, South Korea's fifth-largest shipbuilder by volume of orders, the investment provides a foothold in the high-margin cruise-ship market -- a segment that has been largely untapped by Korean shipbuilders.

While they dominate world shipbuilding with 40% of the orders, Korean shipbuilders have mostly focused on large container ships and other merchant vessels. One reason: the difficulty of obtaining finishing materials such as marble and upscale woods.

But as competition for ship orders heats up because of aggressive Chinese companies, South Korean shipbuilders have been looking for ways to stay ahead.

"The cruise-ship market is the ultimate destination that they should head to," as it requires more specialized skills and is more profitable than the market for merchant vessels, says Won-kyung Choi, an analyst at GoodMorning Shinhan Securities in Seoul.

A cruise ship is often sold for between $500 million and $1 billion per ship, while a tanker for carrying liquefied natural gas can fetch about $200 million, analysts say.

Earlier this year, Samsung Heavy Industries Co. announced it would start making cruise ships in 2010. The South Korean Ministry of Commerce, Industry and Energy also selected the cruise-ship business as a mid-term project for the government to support in research and development.

Shares of STX Shipbuilding rose 15% yesterday, the maximum daily limit, closing at 68,000 won ($74.15). Shares of Aker Yards gained 24% to 87.75 kroner ($16.07).

Investment in a foreign company is rare among South Korean businesses, which have preferred to grow on their own. Just one other company has made a foreign acquisition this year: In July, machinery producer Doosan Infracore Co. invested $4.9 billion in three businesses, including the Bobcat compact-construction-equipment unit of the U.S.'s Ingersoll-Rand Co.

STX Shipbuilding is certainly flush with cash. For the first six months this year, it reported net profit of 63.8 billion won ($69.6 million), more than five times the year-earlier net of 12.6 billion won.

Aker Yards, the world's second-largest cruise-ship maker, has constructed vessels with as many as 2,700 cabins, STX Shipbuilding said. Sales of cruise ships and ferries made up 44% of its revenue in 2006, according to STX Shipbuilding.

Separately, Norwegian company Aker Kvaerner ASA yesterday reported a 60% jump in third-quarter net profit. Aker Kvaerner and Aker Yards are both members of the Aker group. The industrial-engineering and construction-services company said net profit rose to 621 million kroner ($113.7 million) from 389 million kroner, helped by lower expenses and a gain in currency contracts.

From: WSJ.com