Spin-off Implemented to Enhance Business Efficiency
New City Development Near Economic Hub Ho Chi Minh City
Profitability Expected from Revised Land Law
GS Engineering & Construction has rolled up its sleeves to target the Vietnamese market, including splitting its local subsidiary into five separate entities. As attention focuses on Vietnam's expanding economy and new city development initiatives, there is growing interest in whether GS Engineering & Construction will seize this opportunity to expand its overseas presence for the first time in 13 years since entering Vietnam.
According to the Financial Supervisory Service's electronic disclosure system on September 23, GS Engineering & Construction carried out a spin-off of its Vietnamese subsidiary, VIETNAM GS INDUSTRY ONE-MEMBER (VGSI), in the first half of this year. VGSI is a company engaged in real estate and manufacturing in Vietnam, and GS Engineering & Construction owns 100% of its shares.
With this spin-off, VGSI has been divided into five companies, including existing businesses such as elevator manufacturing, aluminum form manufacturing and leasing, gypsum board manufacturing, and pile manufacturing. A spin-off refers to splitting an existing company to create new ones. Existing shareholders retain the same ownership ratio as before the split. Since GS Engineering & Construction holds 100% of VGSI's shares, the newly spun-off companies also become wholly owned subsidiaries of GS Engineering & Construction. Three of the new companies began operations in early April, while the remaining one started on May 8. This restructuring was carried out to enhance business efficiency by dividing specialized business areas, thereby ensuring expertise and independence, and ultimately improving operational efficiency for each business segment.
To strengthen its local market strategy, GS Engineering & Construction is also conducting business through Vietnam GS Enterprise One Member (VGSE), a real estate company in which it holds a 100% stake alongside VGSI. VGSI plans to supply approximately 17,000 housing units in Nha Be, located south of Ho Chi Minh City, an economic hub. VGSE is planning to develop 799 premium residential units and one office building in Thu Thiem, the central area of Ho Chi Minh City, as well as a total of 6,000 housing units in the Long Binh new city in the eastern part of the city. Both Long Binh and Nha Be new cities are expected to be developed as smart cities.
GS Engineering & Construction has also benefited from Vietnam's revised land law, which has given the company a strategic advantage. Previously, land prices were determined every five years based on government announcements, but with last year's legal amendments, prices are now based on market value. As a result, new entrants must pay much higher land costs to enter development projects than before. Since GS Engineering & Construction has already secured construction sites, it is expected to see improved profitability from the rise in land prices.
Shin Daehyun, a researcher at Kiwoom Securities, stated, "GS Engineering & Construction has benefited from holding land use rights since 2007, and is expected to gain from both the land price appreciation over the years and the recent land law amendments. The higher land prices and official land values have raised the entry barriers for new players, allowing GS Engineering & Construction to enjoy high profitability from the land it secured in the past."
Meanwhile, GS Engineering & Construction's overseas revenue in the second quarter amounted to 864.8 billion won, up 67.6% from the same period last year and 1.9% higher than in the previous quarter.
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