South Korea's polluters invest in green for profit

SEOUL (Reuters) - Heavy polluters in South Korea, one of the world's fastest growing carbon emitters, are attracting strong investor interest as they pump billions dollars into green projects, cashing in on state incentives and the global push for renewable energy.

Companies such as LG Chem and Samsung SDI, which have already established a strong presence in rechargeable batteries, are being joined by the likes of SK Energy, Hyundai Heavy Industries and the Samsung Group on projects from batteries to solar and wind.

Shares in companies involved in the environmental push have risen sharply, but analysts believe more gains are likely as Seoul looks to leverage off the country's existing high-tech infrastructure and become a global green industry leader.

LG Chem shares have more than tripled so far this year, propelled by news it would supply batteries to General Motors' Volt plug-in vehicle. Samsung SDI shares also have tripled, boosted by an electric car battery supply deal with BMW.

Korea's No.1 refiner SK Energy, which saw its shares spike by as much as a third this month on the news of testing hybrid car batteries for mass production, is also close to supply batteries to an European automaker, a company source said.

"The fact LG Chem and Samsung SDI were picked up by global top-tier automakers GM and BMW tells that their technologies were proved, and they have grown big enough to compete with Japanese rivals," said Eung-ju Yi, analyst at Daewoo Securities.

GROWTH MARKET, VALUATIONS REASONABLE

LG Chem trades at 11 times its estimated earnings and Samsung SDI at 28 times, still well below rivals including Japan's GS Yuasa and Chinese electric car and battery maker BYD, according to Thomson Reuters data.

With the global electric-car battery market projected to hit $27 billion in 2015 from almost nothing now, growth prospects look strong.

"Given (its) technological leadership, we anticipate LG Chem signing additional contracts with a well-known global automaker in the near future," said Morgan Stanley in a recent research.

As many firms venture into green business globally, acquiring competitive technology and patent is critical, analysts said.

Conscious of this, Korea is providing financial enticements such as tax breaks to encourage its technology powerhouses such as Samsung Electronics and LG Electronics to support its push for global green leadership.

"We think the most realistic and effective way of realizing green growth is through IT. IT is a major axis of green growth," said Sang-hyup Kim, secretary at the presidential office.

Four-fifths of Korea's economic stimulus spending has been earmarked for environmental projects, the highest proportion in the world's top 20 economies, according to the U.N.

Having seen emissions double in 15 years to 2005, Korea will set a 2020 emissions target by the end of 2009.

To help its economy recover from the financial crisis, reduce its reliance on imported energy and to cut carbon emissions, South Korea has vowed to spend $85 billion, or 2 percent of GDP, on eco-projects over five years.

That will be followed by billions dollars of investment plans by major firms, including the world's top memory chip maker Samsung Electronics.

GROUP TIES

Large Korean companies typically have numerous associate firms which can be relied on as customers for products and components.

"Korea has solid IT companies in front, and there has been a strong demand for self-supply of components. Such needs met the country's drive in green technologies," said Sean SY Hwang, head of Korea research at Mirae Asset Securities.

LG Chem, for example, has captive markets for its batteries and LCD glasses through LG Electronics and the world's No.2 LCD panel maker LG Display. That is helping LG Chem as its main petrochemical business gets more volatile and challenging.

Samsung Group plans to join solar cell business via Samsung Electronics and wind power business via the world's No.3 shipbuilder, Samsung Heavy Industries.

SK Energy is also leveraging off SK Telecom, the country's No.1 mobile operator, in developing smart grid technology that will allow two-way communication between utilities, customers and eventually household appliances.

Korean refiners and heavy industry makers also joined the global rush in spending to tap renewable energy markets that are expected to be worth more than $134 billion a year over the next 12 years.

The world's top shipbuilder Hyundai Heavy is spending up to 300 billion won in the solar cell sector in 2008-2009.

"It is possible for heavy industry makers to catch up in a short period with global wind power players, should the world's top shipbuilders aggressively enter the market," said Yi at Daewoo Securities.

($1=1186.8 Won) (Additional report by Rhee So-eui; Editing by Lincoln Feast)