Founded in 1971, Yongnam is a leading Singapore-based multi-discipline engineering and construction services company. It comprises three divisions ‒ Structural Steelworks, Specialist Civil Engineering, and Mechanical Engineering.
For steel fabrication, the group’s two production facilities in Singapore and Malaysia have a total annual production capacity of 78,000 tonnes.
In an interview with Biz Daily, Seow Soon Yong, Chief Executive Officer of Yongnam, shared about the company’s growth strategy and how it will capitalise on business opportunities worldwide in the longer term.
What role does your mechanical engineering division play, now that structural steelworks and specialist civil engineering are your core business activities?
Although we started off with mechanical engineering in the early years of our business, this division now plays a small role mainly in the area of plant maintenance.
We are not actively pursuing this business area because of low control where the manufacturer provides the equipment and we only install it. This gives us little bargaining power in negotiations and such projects occur only on a periodic basis. With our facilities today, we also do not focus much on mechanical engineering because it is not a high value-added job.
We currently do not have plans to divest the mechanical engineering division because it is not a “spare” division sitting around doing nothing. That’s because mechanical engineering shares the same resources with our other divisions, including fabrication facilities and manpower, and it only involves a different type of work. So mechanical engineering merely plays a diminished role in the company.
What effect did rising steel prices earlier have on your structural steelworks segment?
Steel prices are rather stagnant today because the earlier increase in this year’s first quarter is already done. Steel prices rose earlier because of the increase in iron ore prices amid the general increase in commodity prices. However, a significant increase in steel prices would require big demand, but steel demand is actually not as strong as perceived.
Also, any increase in steel prices would not impact us much because we order steel for fabrication and lock in its price into contracts whenever we get a project. We are a big steel buyer, and steel mills often tell us about upcoming industry trends. For example, Japanese steel millers might want to raise steel prices due to high costs, but they must also consider the prices of competitors in other regions such as Europe.
What areas did Yongnam achieve cost savings which contributed to your improved bottomline in 1QFY2011?
We achieved across-the-board cost savings in areas such as staff costs, professional fees and bank charges and interest. We also seek to achieve further cost savings from improved productivity.
How is Yongnam responding to the Singapore government’s drive to raise productivity?
We set cost and efficiency targets for managers and monitor production performance monthly. Besides on-the-job training, we also continuously send our workers to be trained by Singapore’s Building and Construction Authority and other private training providers as new knowledge arises, and this helps improve productivity and efficiency. In short, we seek to fully utilise our manpower at every stage of the shop floor production process. Some of these training sessions are to meet government agency requirements and others to meet company requirements.
While you do not have any subsidiaries in Japan, how significant do you think would be the impact of the Japan quake on your operations in terms of steel demand as the country rebuilds itself?
Rebuilding is not so much of a problem as compared with the quake’s impact on the Japanese car industry, which has suffered a hit to demand from the damage to steel production plants. While there’s been some planning, Japan does not yet have a concrete idea of how to rebuild, especially with the added impact of the tsunami and nuclear crisis.
But I don’t see any significant impact of the quake on the Japanese construction industry, where there is already overcapacity. Developers will still need to decide if they want to go ahead with their projects and I don’t expect the disaster to significantly affect global steel demand and prices, which are currently quite stable.
However, a sudden surge in oil prices may affect steel prices. Despite OPEC’s recent failure to reach a consensus to raise oil production, Saudi Arabia has unilaterally decided to increase production. And they should do so to meet demand and bring some stability to oil prices. Oil prices affect everyone, including steel mills that have to transport steel in bulk.
Part of your growth plan is to continue exploring projects in the Middle East and Europe. How will the current Middle Eastern political unrest and European sovereign debt crisis affect your approach to these markets?
We are looking for projects in more politically stable Middle Eastern countries such as Saudi Arabia, United Arab Emirates, and Qatar. But it’s true that the unrest in the region is not yet settled and may spill over into other neighbouring countries later. At the moment, our strategy remains unchanged, with focus on the Middle East, India, Hong Kong, Singapore, Malaysia and Indonesia.
Currently, there is strong government demand for public infrastructure in Hong Kong. We recently won two specialist civil engineering sub-contracts that are part of the Hong Kong section of the Guangzhou-Shenzhen-Hong Kong Express Rail Link. And we will continue to actively pursue such jobs in Hong Kong.
We are also exploring opportunities to enter the European offshore market and will not rule out collaborations with joint venture partners.
Your growth strategy also involves actively pursuing offshore structure projects for the generation of clean energy. What challenges do you face in this area?
I don’t see any challenges in this area in terms of technology or manpower because this is not a new business to us and the required skill sets are the same. We entered this offshore business at the end of last year because it was a fast growing area with lots of opportunities.
Of course, there are differences where a different grade of steel is needed that can withstand much colder temperatures in the deep sea. This is not a problem because we have experience in working with different steel materials for different temperatures.
Such offshore projects are environmentally friendly, especially for supplying power by wind. But frankly, wind cannot produce as much power as nuclear plants. Of course, a nuclear plant incident could result in disaster. I think that despite Japan’s nuclear crisis, people are not ruling out the nuclear option although they might also explore other alternatives for power generation.
Going forward, how will Yongnam seize opportunities in the construction industry as Singapore’s economy continues to pick up?
If steel prices increase further, it should not significantly affect steel demand because construction projects need to go on.
We are aware of price trends, so if the market is looking up, we will also have to price that in. Unlike residential and commercial building projects that are exposed to changes in market demand, public infrastructure projects are already budgeted by the government. So we are doing quite alright in such projects.
In fact, the pace of public infrastructure projects in Singapore will remain active over the next few years. For example, we expect to tender for projects for MRT Downtown Line Stage Three sometime in this year’s third or fourth quarter. Our estimated timeframe to tender for projects for the Thomson MRT Line and the North-South Expressway is in end-2012 / 2013.
