Construction

September 29, 2009

Neutral (Maintain)
Company (Code)
Samsung C&T(000830) Hyundai E&C(000720) GS E&C(006360) Daewoo E&C(047040) Samsung ENG(028050) Hyundai Dev(012630) Daelim Ind(000210) Kumho Ind(002990) Doosan E&C(011160) Kyeryong Const(013580)

Korean builders vie for Mid East market

Project overview (refer to Middle East map) The construction sector will be upgraded to Overweight if we identify: 1) renewed orders momentum from overseas, and 2) a full recovery of the provincial housing market on the domestic front. We outlined the Middle East projects in the pipeline that will be a key earnings variable. Among the new Middle East projects on the scene, the potential biddings of Korean builders could be 43, worth USD 120.6bn in total. Limited growth potential, market size If Korean builders are to deliver meaningful new orders growth: 1) the market must get bigger, or 2) their global market shares must expand. International construction orders achieved a 2005-2007 CAGR of 36.1%, while worlds nominal GDP increased 10.3% during the same period. The construction market expanded three times faster than the economy. But the growth figure fell to 1x as the economic downturn set in. The status quo should remain unless the economy makes a fast recovery. Limited growth potential-market share Koreas share of the global market jumped to 9.5% in 2007 from 5.5% in 2006 and overseas order receipts gained a whopping 141.6% during the same period. The fast growth was possible because 1) overseas EPC rivals did not have enough capacity to meet the demand and, 2) Korean domestic housing market was robust. But Koreas global market share has slipped to 8.7% since 2008 due to intensifying competition. We do not believe the Middle East, a major market for Korean builders, will see as explosive growth as in the past. An in-depth analysis will follow in our 2010 construction sector outlook.
Plunging world construction orders growth/GDP growth
5 (x) 500

Recommendation
BUY (Maintain) BUY (Maintain) Hold (Maintain) Hold (Maintain) BUY (Maintain) Hold (Maintain) Hold (Maintain) Hold (Maintain) BUY (Maintain) Hold (Maintain)

Overseas orders to Korean builders rising faster than Middle East GDP
(USD bn) Middle East GDP (LHS) Orders to Korean builders (RHS) (USD bn) 25

450

20

400

15

350

10

Construction/construction materials

Sang Hi Han, CFA, 82-2-3276-6278

shhan @truefriend.com

300

2001

2002

2003

2004

2005

2006

2007

songnam@truefriend.com

2002

2003

2004

2005

2006

2007

2008

Source: ENR, IMF

Source: IMF, ICAK, Korea Investment & Securities

The contents of this report accurately reflect the analysts views. Under no circumstances were there any external pressures or intervention during the analysis process or the preparation of this report. Prepared by: Sang Hi Han, Song Hyun Nam

2008

Song Hyun Nam, 82-2-3276-6228

250

Guide to Korea Investment & Securities Co., Ltd. stock ratings based on 12-month forward share price performance relative to market index BUY: Expected to outperform the market by 15%p or more. Hold: Expected to either outperform or underperform the market by less than 15%p. Underweight: Expected to underperform the market by 15%p or more. * As of June 2, 2008, Korea Investment & Securities Co., Ltd. has adopted a new stock rating system comprised of BUY, Hold and Underweight. Guide to Korea Investment & Securities Co., Ltd. sector ratings for the next 12 months Overweight: Recommend increasing the sectors weighting in the portfolio compared to its respective weighting in the Kospi (Kosdaq) based on market capitalization. Neutral: Recommend maintaining the sectors weighting in the portfolio in line with its respective weighting in the Kospi (Kosdaq) based on market capitalization. Underweight: Recommend reducing the sectors weighting in the portfolio compared to its respective weighting in the Kospi (Kosdaq) based on market capitalization. Analyst Certification I/We, as the research analyst/analysts who prepared this report, do hereby certify that the views expressed in this research report accurately reflect my/our personal views about the subject securities and issuers discussed in this report. I/We do hereby also certify that no part of my/our compensation was, is, or will be directly or indirectly related to the specific recommendations or views contained in this research report.

Important Disclosures As of the end of the month immediately preceding the date of publication of the research report or the public appearance (or the end of the second most recent month if the publication date is less than 10 calendar days after the end of the most recent month), Korea Investment & Securities Co., Ltd., or its affiliates does not own 1% or more of any class of common equity securities of the companies mentioned in this report. There is no actual, material conflict of interest of the research analyst or Korea Investment & Securities Co., Ltd., or its affiliates known at the time of publication of the research report or at the time of the public appearance. Korea Investment & Securities Co., Ltd., or its affiliates has not managed or co-managed a public offering of securities for the companies mentioned in this report in the past 12 months; Korea Investment & Securities Co., Ltd., or its affiliates has not received compensation for investment banking services from the companies mentioned in this report in the past 12 months; Korea Investment & Securities Co., Ltd., or its affiliates does not expect to receive or intends to seek compensation for investment banking services from the companies mentioned in this report in the next 3 months. Korea Investment & Securities Co., Ltd., or its affiliates was not making a market in the securities of the companies mentioned in this report at the time that the research report was published. Korea Investment & Securities Co., Ltd. does not own over 1% shares of the companies mentioned in this report as of September 28, 2009. Korea Investment & Securities Co., Ltd. has issued ELW with underlying stocks of Daelim Industrial, Daewoo E&C, Samsung C&T, Samsung Engineering, Hyundai E&C, Hyundai Development and GS E&C, and is the liquidity provider. Korea Investment & Securities Co., Ltd. has provided this report to various third parties. Neither the analysts covering these companies nor their spouses own any shares of the companies mentioned in this report as of September 28, 2009. The contents of this report accurately reflect the analysts views. Under no circumstances were there any external pressures or intervention during the analysis process or the preparation of this report. Prepared by: Sang Hi Han, Song Hyun Nam

This report was written by Korea Investment & Securities Co., Ltd. to help its clients invest in securities. This material is copyrighted and may not be copied, redistributed, forwarded or altered in any way without the consent of Korea Investment & Securities Co., Ltd. This report has been prepared by Korea Investment & Securities Co., Ltd. and is provided for information purposes only. Under no circumstances is it to be used or considered as an offer to sell, or a solicitation of any offer to buy. We make no representation as to its accuracy or completeness and it should not be relied upon as such. The company accepts no liability whatsoever for any direct or consequential loss arising from any use of this report or its contents. The final investment decision is based on the clients judgment, and this report cannot be used as evidence in any legal dispute related to investment decisions.

Construction

Saudi Arabia & Oman

P1: Coker unit (USD 1.2bn) P2: Crude facility (USD 1.0bn) P3: Gasoline (USD 2.3bn) P4: Hydro-cracker (USD 1.2bn) P5: Tank farm (USD 0.9bn) P6: Solids handling facility (USD 0.5bn)

Shaybah gas development Project (USD 4.0bn)

P1: Aromatic Units (USD 0.7bn) / Samsung ENG P2: Coker Units (USD 4.5bn) / Samsung ENG P2B: Acid Gas Treatment (USD 8.2bn) / Daelim Ind. P5: Plant Utilities (USD 4.3bn) / SK E&C

Qurayyah power plant (USD 1.85bn) / DHI

Shaybah Gas

Ethylene Dichloride Plant (USD 0.4bn) Wasea bulk plant Project (USD 0.3bn) Wasea Bulk plant

Qurayyah Power

EDC Petro. Karan Gas Ras Tannura Refinery & Petro.

Karan Gas Field Development Gas Facilities (USD 1.35bn) / Hyundai E&C Cogeneration and utilities (USD 8bn) / Petrofac Platforms and pipeline (USD 1.2bn) / Mcdermott

Jubail Refinery

Rabigh Petrochemical Complex project phase 2 (USD 10bn) Phase 1 (USD 10bn) is about to start production Rabigh 6 power plant (USD 3.5bn)

Marafiq Power Yanbu Refinery Rabigh Petro.

Ras Tanura Integrated refinery and petrochemicals Complex (USD 20bn) Bark&Sohar Power

PP11 IPP Power Marafiq STG Units 5 & 6 Project (USD 0.75bn) Hanhwa E&C

PP11 Independent Power Project (USD 2.2bn) Arabiyah gas development Project (USD 3.0bn) Amal EOR project

Rabigh 6 Power

Arabiyah Gas

Amal Enhanced oil recovery Project (USD 0.3bn)

Barka 3 & Sohar 2 Independent power project (USD 2.0bn)

Refinery

Gas

Water

Power

Petro.

Civil/Building

Order-placed

Note 1: Orders-placed are for Korean contractors 2: Planned projects are shortlisted by order placement possibilities Source: Company data, Press, Korea Investment & Securities

Major projects schedule

Ras Tanura refinery&petro. complex Yanbu refinery Rabigh petrochemical complex Phase 2 Rabigh 6 project PP11 IPP(Independent Power Project) Shah gas project Al Bayyaa nuclear power plant project phase 1 Ruwias refinery Hassyan power and water desalination P2 Al-Shaheen refinery Al-Zour power and water plant
FEED Bidding

2H09 1H10 2H10 1H11 2H11 1H12 2H12 1H13 2H13 1H14 2H14 1H15 2H15 1H16 2H16 1H17 2H17

Construction

Construction

Kuwait

Qatar
Friendship Causeway Between Qatar and Bahrain (USD 2.7bn)
Subiya gas power plant (USD 2.65bn) / HHI

Friendship Causeway Ras Laffan Refinery PMP

Doha East Power& Water plant USD(2.0bn)

Gas booster station 132 project (USD 0.8bn) Gas booster station 171 project (USD 0.8bn)

LNG Plateau Maintenance Project (USD 1.2bn) Ras Laffan refinery Expansion project (USD 0.7bn)
Subiya Power

Shaibia Power & Water Plant USD(1.0bn) Mina al-Ahmadi refinery USD(2.0bn) Oil&Gas pipline project to Doha&Subiyah and Al-Zour&Shuaiba (USD 1.2bn) 4th gas train (USD 0.7bn) Al-Zour North water and power project (USD 4.0bn) KNPC Al-Zour New refinery project (Canceled, USD 6.4bn) Al-Zour independent water and power project USD(1.0bn)

Doha East

BS Gas

Al Shaheen refinery (USD 10bn)

Mina al-Ahmadi refinery No.4 Gas train Al Zour North KNPC Al-Zour Refinery WDC II

New Doha International Airport (USD 14.5bn) Phase 3a(USD 1.0bn) Qatar Railway System (USD 1.1bn)

Phase 3a NDIA

Al Shaheen Refinery NDP

Qatar Railway System

Al Zour WDC II Project USD(3.0bn)

New Doha Port (USD 7.0bn)

UAE
Ruwais refinery expansion project (Total USD 10bn) P1: Crude distillation units (USD 2bn) P2: Residue fluid-cracking unit P3: Offsites and utilities P4: Tank farm element P5: Marine facilities Ruwais fertilizer factory project (USD 1.2bn) Ruwais Refinery Bab Refinery IGD Ruwais IGD Habshan

Abu Dhabis Cleveland Clinic Hospital (USD 1.4bn)

Hassyan power& desalination project phase 2 (USD 4.0bn)

Bab oil field upgrade project (USD 1.0bn)

Cleveland Hospital

Hassyan Power& Desal.

Ruwais Fertilizer P3: No.4 NGL plant package (USD 1.2bn) / GS E&C P4: Ruwais Storage Tanks (USD 0.53) / CBI

Shah Al Bayyaa Gas Nuclear P1: Habshan 5 Process Plant Power (USD 4bn) / JV of JGC&Tecnimont Al Bayyaa nuclear power plant project phase 1(USD 5.0bn) P2: Habshan 5 Utillities&Offsite (USD 1.7bn) / Hyundai E&C

Shah gas development project (Total USD 12bn) P1: Gas extraction plant P2: Main process plant P3: Sulphur-recovery unit P4: Offsite & utilities facility P5: Gas pipeline P6: Sulphur pipeline P7: Sulphur process plant P8: Dredging work P9: Civil engineering P10: Building Qusawirah Refinery Qusawirah oil field upgrade project (USD 1.0bn)

Construction

Country Area Arabiyah Shaybah Wasea Jubail Ras Tanura

Project Arabiyah gas development project Shaybah gas development project EDC project Ras Tanura oil&petrochemical complex Package 1: Coker unit Package 2: Crude facility Package 3: Gasoline

Type Gas Gas Petrochemical Refinery+petrochemcal

Amounts (USD bn) 3.0 4.0 0.3 0.4 20.0 1.2 1.0 2.3

Details SNC Lavalin received FEED KBR received FEED Tender deadline till Nov Constract in October FEED till June 2010 Tender deadline on Jan 31, 2010 Tender deadline on Jan 31, 2010 Tender deadline on Jan 31, 2010 Tender deadline on Jan 31, 2010 Tender deadline on Jan 31, 2010 Tender deadline on Jan 31, 2010 FEED till 2Q10 Commercial bid deadline on Dec 7

Bidders

Wasea bulk plant project (oil storage and distribution) Refinery

Saudi

Yanbu Package 4: Hydro-cracker Package 5: Tank farm Package 6: Soilds handling facility Rabigh Riyadh Rabigh petrochemical complex phase 2 PP11 IPP(Independent Power Project)

Refinery 1.2 0.9 0.5 Petrochemical Power 10.0 2.2

Rabigh Ruwais

Rabigh 6 project UAE fertilizer factory project Shah gas project package 1 (Gas extraction plant) Shah gas project package 2 (Main process plant) Shah gas project package 3 (Sulphur-recovery unit ) Shah gas project package 4 (Offsite & utilities facility) Shah gas project package 5 (Gas pipeline) Shah gas project package 6 (Sulphur pipeline) Shah gas project package 7 (Sulphur process plant) Shah gas project package 8 (Dredging work) Shah gas project package 9 (Civil engineering ) Shah gas project package 10 (Building)

Power Industrial

3.0 1.2 1.0

Technical bid deadline on Oct 31 Contract in Sep Technical bid deadline on Dec 21 Technical bid deadline on Nov 3 Technical bid deadline on Nov 3 Technical bid deadline on Nov 3 Technical bid deadline on Oct 11

Daelim Ind., GSE&C, Hyundai E&C, Samsung ENG FEED till June 2010 by KBR and Foster Wheeler Technip, TR, Saipem, JGC, Chiyoda, Sinopec, Samsung ENG, Hyundai E&C Technip, Saipem, Chiyoda, Sinopec, Samsung ENG, Daelim Ind., Hyundai E&C Technip, TR, Saipem, JGC, Sinopec, Samsung ENG, Daelim Ind. Technip, Saipem, JGC, Chiyoda, GSE&C, Daelim Ind., CBI Lummus Petrofac Consortium CB&I, Sinopec, Punj Lloyd, L&T, Petrosteel, Hyundai Heavy, SKE&C, Daewoo E&C Saipem, Techint, FL Smithe, JGC, Petrofac, Daelim Ind., GSE&C, Hyundai E&C FEED till 3Q10 by JGC 5 Consortium (Samsung C&T, Hyundai Heavy, DoosanHeavy and Daelim Ind. in each consortium) DoosanHeavy, Hyundai Heavy, Alstom, Siemens, Arabian Bemco, National Contracting Company, Mitsubishi Heavy, Marubeni Corp. Saipem, Technimont, Uhde & Samsung ENG consortium Samsung ENG, GSE&C, SKE&C, Hyundai E&C Samsung ENG, Hyundai E&C, Hyundai Heavy Samsung ENG, GSE&C, SKE&C SK E&C, Hyundai Heavy Technip, Saipem, CCC, CAT, NPCC, Dodsal, Punj Lloyd Fluour, working on the detailed design, is likely to take EPC NA NA NA NA Korea Consortium (KEPCO, Doosan Heavy, Hyundai E&C, Samsung E&C), France Consortium, US/Japan Consortium Tecnimont, Tecnicas Reunidas, Toyo ENG/Hyundai E&C, SKE&C Technip, Saipem, JGC, Petrofac, GSE&C Techint, Petrofac, Daelim Ind., Samsung ENG, Hyundai E&C, Hyundai Heavy NPCC, Punj Lloyd, Daewoo E&C, Hyundai Heavy, Samsung C&T Saipem, Besix, Hyundai E&C, GSE&C Technip, Saipem, Tecnicas Reunidas, Petrofac, NPCC, L&T, GSE&C, SK E&C Technip, Saipem, Tecnicas Reunidas, NPCC, L&T, GSE&C, SK E&C 6 consortiums (Samsung C&T with Besix)

Shah

Gas 11.0

Technical bid deadline on Sep 28 Technical bid deadline on Oct 28 Technical bid deadline on Oct 11 Technical bid deadline on Oct 11 Technical bid deadline on Oct 11 Contract scheduled in Sep but likely to be delayed Commercial bid deadline on Sep 30 Commercial bid deadline on Sep 30

UAE

Al Bayyaa

Al Bayyaa nuclear power plant project phase 1 Ruwais refinery expansion project package 1 (Crude distillation units) Ruwais refinery expansion project package 2 (Residue fluid-cracking unit) Ruwais refinery expansion project package 3 (Offsites and utilities) Ruwais refinery expansion project package 4 (Tank farm element) Ruwais refinery expansion project package 5 (Marine facilities) Bab oil field upgrade project Qusawirah oil field upgrade project Hassyan power&desalination project phase 2 Abu Dhabis Cleveland Clinic hospital Ras Laffan refinery Expansion project Al Shaheen refinery LNG Plateau Maintenance Project New Doha International Airport phase 3a Gas booster station 132 project 4th gas train project Oil&Gas pipline project to Doha&Subiyah Oil&Gas pipline project to Al-Zour&Shuaiba Gas booster station 171 project Al Zour WDC II Project power and water plant at Al-Zour North power and water plant power and water plant Mina al-Ahmadi refinery Al-Zour independent water and power project New Refinery Project at Al-Zour PKG 2 New Refinery Project at Al-Zour PKG 5 New Refinery Project at Al-Zour PKG 1 New Refinery Project at Al-Zour PKG 4

Power

5.0 2.0

Ruwais

Refinery 8.0

Commercial bid deadline on Oct 23 Commercial bid deadline on Oct 23 Commercial bid deadline on Oct 23

Bab Qusawirah Jebel Ali Abu Dhabi Ras Laffan Al-shaheen Qatar Ras Laffan Doha Kuwait North Al-Ahmadi Mina al-Ahmadi Mina al-Ahmadi Kuwait North Al-Zour Al-Zour North Doha East Shuaiba Al-Ahmadi Al-Zour

Refinery Refinery Power/Water Building Refinery Refinery Gas Civil Gas Gas Refinery Refinery Gas Water Power&desalination Power&desalination Power&desalination Refinery Power&desalination

1.0 1.0 4.0 1.4 0.7 10.0 1.2 1.0 0.8 1.3 0.8 0.4 0.8 3.0 4.0 2.0 1.0 0.7 1.0 2.1 1.1 2.0 1.2

Commercial bid deadline on Nov 24 Contract in Sep Tender deadlin on Nov 8 Constract in end-October Tender deadline in 2H10 Tender deadline in October Tender deadline on Sep 30 Technical bid deadline in mid-October Technical bid deadline in Sep 29 Tender deadline on Dec 31 Tender deadline on February 7, 2010 Tender deadline on February 7, 2010 Tender deadline on February 7, 2010 Tender deadline on Sep 8 Tender within months Technical bid deadline in February 7, 2010 Technical bid deadline in February 7, 2010 Technical bid deadline in Dec 13 Consrulting proposal deadline on Oct 27 Cancelled Cancelled Cancelled Cancelled

Technip, Saipem,Consortium of JGC&GS E&C, Consortium of Toyo ENG&Hyundai E&C Hyundai E&C, Samsung C&T, Besix&Midmac JV, Vinci&Qatar Diar JV SK E&C, GSE&C, Daelim Ind., Hyundai E&C, Hyundai Heavy, Saipem, Petrofac, Tecnicas Reunidas, SNC Lavalin Technip, Saipem, Petrofac, Sinopec, GSE&C, Hyundai E&C, Daelim Ind., Hyundai Heavy Hyundai E&C, Hyundai Heavy, Daelim Ind., GSE&C, SKE&C, Saipem, Technip, Petrofac Hyundai E&C, Hyundai Heavy, Daelim Ind., GSE&C, SKE&C, Saipem, Technip, Petrofac SK E&C/Hitachi/Mushirif, ABB/Ahmadiah, CCC, SNC Lavalin, DoosanHeavy, Marubeni/Combined, Snamprogetti/Kharafi, Arab contractor, GSE&C

Kuwait

SK E&C Hyundai E&C GSE&C Daelim Ind.

Al-Zour

Refinery

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TOKYO
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This report has been prepared by Korea Investment & Securities Co., Ltd. and is provided for information purposes only. Under no circumstances is it to be used or considered as an offer to sell, or a solicitation of any offer to buy. While all reasonable care has been taken to ensure that the information contained herein is not untrue or misleading at the time of publication, we make no representation as to its accuracy or completeness and it should not be relied upon as such. This report is provided solely for the information of professional investors who are expected to make their own investment decisions without undue reliance on this report and the company accepts no liability whatsoever for any direct or consequential loss arising from any use of this report or its contents. This report is not intended for the use of private investors. 2009. All rights reserved. No part of this report may be reproduced or distributed in any manner without permission of Korea Investment & Securities Co.,Ltd.