Expectations for Performance Recovery Next Year... Shipbuilding Stocks Restarting

Expectations for Rebound After This Year's Slump↑
"Profit Turnaround Expected Without Additional Upside Factors"

HMM Gdansk loading cargo at Rotterdam Port, Netherlands (Provided by HMM) [Image source=Yonhap News]

[Asia Economy Reporter Minwoo Lee] Shipbuilding stocks are collectively rising, showing signs of a rebound. This is interpreted as reflecting expectations that performance will improve starting next year after posting losses this year.

According to the Korea Exchange on the 7th, HMM (formerly Hyundai Merchant Marine) shares have risen 15.04% based on closing prices up to the previous day this month. This already exceeds the KOSPI's increase rate (4.73%) during the same period by more than three times. As of 11:05 a.m. on the same day, the price recorded 27,200 KRW, down 0.18% from the previous day. Korea Shipbuilding & Offshore Engineering and Daewoo Shipbuilding & Marine Engineering also rose 8.69% and 5.19%, respectively, during the same period, outperforming the market returns. All of them are showing a rebound after hitting their yearly lows at the end of last month.

This is interpreted as reflecting expectations that concerns about earnings forecasts will be resolved. For the shipbuilding sector, an operating loss was expected this year. According to the market consensus by financial information provider FnGuide, Korea Shipbuilding & Offshore Engineering is projected to record an operating loss of 643 billion KRW on a consolidated basis this year. Daewoo Shipbuilding & Marine Engineering is expected to have an operating loss of 1.295 trillion KRW this year.

NH Investment & Securities interpreted that profits stagnated due to a sharp rise in the price of thick plates (steel plates with a thickness of 6 millimeters or more). However, it is forecasted that this issue will be resolved starting next year, leading to performance improvement. Researcher Jae-eun Kim of NH Investment & Securities explained, "Shipbuilders reflected the surge in material costs that occurred this year in advance as provisions, so if there is no additional surge in material costs, they could turn profitable from next year."

There is also an analysis that concerns about the increased proportion of orders for low-value-added bulk carriers and oil tankers will be limited. Currently, the order backlogs for oil tankers and container ships are only 7.5% and 7.1%, respectively, and it is expected that the proportion of oil tankers and bulk carriers will increase in next year's ship orders. Researcher Youngsoo Han of Samsung Securities said, "While a decline in demand for high-value-added main ship types amid sluggish demand is negative, domestic shipbuilders have already secured sufficient orders, so there is no need to view the expansion of low-value-added ship orders negatively," adding, "Rather, the current expansion of oil tanker and bulk carrier order proportions will accelerate ship price increases."