20-10-2016

Shipbuilders’ Q3 earnings better than expected

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South Korea’s major shipbuilders are expected to have posted better-than-expected earnings in the third quarter of the year on the back of their efforts to cut costs through tough restructuring, industry sources said Wednesday.

According to Korea Investment & Securities Co., Hyundai Heavy Industries Co., one of the country’s top three shipyards, is forecast to have logged an operating income of 264 billion won (US$235 million) in the third quarter of the year, on sales of 9.15 trillion won.

Samsung Heavy Industries Co., another major shipbuilder, may have racked up a third-quarter operating income of 52 billion won on sales of 2.33 trillion won.

But Daewoo Shipbuilding & Marine Engineering Co. is expected to have suffered losses in the July-September period, according to the brokerage house.

“Local shipyards’ earnings will improve after 2018, but we can conclude that their business results will not be further worsened,” said Lee Kyong-ja, an analyst at the brokerage house.

But it is uncertain whether the local shipyards will see an improvement in their bottom lines down the road as the global shipbuilding sector is still mired in a protracted slump, and their earnings are mostly backed by cost-cutting measures.

Recently, local shipyards have clinched a slew of deals to build oil tankers and LNG carriers, but it is too early to say that the sector is rebounding.

Hyundai Heavy has secured $2.3 billion worth of orders so far this year, far shy of its annual order target of $13.1 billion. Daewoo Shipbuilding, which set its annual order target at $6.2 billion, has clinched new orders worth $1.3 billion, while Samsung Heavy has bagged some $1 billion so far this year.

“Although there are some deals up for grabs, there will be just two or three mega deals to be placed until the first half of next year,” said Jun Jae-chun, an analyst at Daishin Securities. “We can expect a meaningful recovery to come after 2017.”

The country’s big three shipyards — Hyundai Heavy Industries Co., Daewoo Shipbuilding & Marine Engineering Co. and Samsung Heavy Industries Co. — have been under severe financial strain since the 2008 global economic crisis, which sent new orders tumbling amid a glut of vessels and tougher competition from Chinese rivals.

They suffered a combined operating loss of 8.5 trillion won last year. The loss was due largely to increased costs stemming from a delay in the construction of offshore facilities and a protracted slump, with Daewoo Shipbuilding alone posting a 5.5 trillion-won loss.

Earlier this year, the shipbuilders drew up sweeping self-rescue programs worth 10.35 trillion won in desperate bids to overcome the protracted slump and mounting losses.

Some analysts said rising oil prices may help local shipyards get more new orders in the future, although their values may not be big enough to improve shipyards’ earnings.

“A sharp increase in order backlogs may be unlikely during the fourth quarter, but local shipyards are expected to bag a slew of new orders,” said Chung Dong-ik, an analyst at Hyundai Securities.

Source: Yonhap

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