[Click eStock] "Samsung Heavy Industries, Risks and Market Conditions Similar to 2018"

Stock Price Plummeted 33.4% in One Month After 2017 Capital Increase Announcement
Stock Recovers as LNG Carrier Orders Rebound and Overhang Concerns Ease
Shinhan Financial Investment Lowers Samsung Heavy Industries Target Price from 8,337 KRW to 7,700 KRW

[Asia Economy Reporter Gong Byung-sun] An analysis has emerged that the recent financial structure risk faced by Samsung Heavy Industries is similar to the situation in 2018. If orders for liquefied natural gas (LNG) carriers and others recover in the future, the stock price is also expected to rebound.

On the 21st, Shinhan Financial Investment maintained a 'Buy' rating on Samsung Heavy Industries but lowered the target price from the previous 8,337 won to 7,700 won. The closing price on the previous day was 6,010 won.

Samsung Heavy Industries conducted a paid-in capital increase worth 1.2 trillion won on August 17 due to concerns over deteriorating financial structure. The reasons for this were a decline in sales caused by poor orders in 2019-2020, inventory valuation losses of drilling rigs, and concerns about capital erosion due to losses. On the day of the paid-in capital increase announcement, Samsung Heavy Industries' stock price fell by 3.89%.

However, Shinhan Financial Investment's view is that the situation is similar to after the paid-in capital increase announcement in 2017. On December 6, 2017, Samsung Heavy Industries announced a paid-in capital increase, and the stock price plunged 33.4% over the following month. But as orders recovered due to LNG carriers and concerns over potential excess shares known as overhang were dispelled, the stock price recovered.

This year, the order environment for LNG carriers is also favorable. Recently, energy prices have surged, leading to an increase in long-term supply contracts to secure stable energy. This is expected to lead to an increase in the start of LNG liquefaction plants (export bases) and, consequently, an increase in LNG carrier orders. Hwang Eo-yeon, a researcher at Shinhan Financial Investment, predicted, “The stock price will show a full recovery based on the momentum of LNG carrier orders.”

(Provided by Shinhan Financial Investment)

The financial structure risk is also expected to stabilize. With this paid-in capital increase, Samsung Heavy Industries' debt ratio is estimated to have decreased by 95.3 percentage points from the previous quarter to 230.2%. Additionally, the net outflow of shipbuilding payments amounting to 2.2 trillion won in 2022-2023 and the maturity of corporate bonds and bills amounting to 700 billion won can be managed with the paid-in capital increase proceeds of 1.3 trillion won and the expected year-end cash assets of 1.8 trillion won excluding the paid-in capital increase proceeds.

Researcher Hwang explained, “This time as well, the stock price will rebound as LNG carrier orders recover and overhang is resolved,” adding, “Samsung Heavy Industries is also scheduled to participate in the construction project of Samsung Electronics' semiconductor plant in the future.”