[Into the Stocks] A 'Favorable Wind' of Orders Blowing at Hyundai Heavy Industries

[Asia Economy Reporter Hwang Junho] A favorable wind is blowing for shipbuilding industry stocks. Despite the stock market being shaken by liquidity tightening such as accelerated tapering (asset purchase reduction) and interest rate hikes in the US this year, the stocks are showing a continuous upward trend. This steady progress is due to the order wind for the representative shipbuilding stocks of Hyundai Heavy Industries Group, raising growing interest in whether an opportunity for a performance turnaround will come this year.

According to the Korea Exchange on the 6th, Hyundai Heavy Industries' stock price has risen since Christmas Eve last year until the 5th. This is the longest upward trend since its listing in September last year. The increase reached 6.99%. Hyundai Mipo Dockyard also rose for four consecutive trading days. As of 9:34 AM on the 6th, both companies are still showing an upward trend (0.96%, 4.51%).

Expectations for this year's performance are reflected in the stock prices. On the 3rd, the group announced the order guidance for Hyundai Heavy Industries, Hyundai Samho Heavy Industries, and Hyundai Mipo Dockyard for this year, which is 21.8% lower than last year's actual results but 16.75% higher than last year's guidance. Youngsoo Han, a researcher at Samsung Securities, said, "This year's order guidance suggests that the company is very optimistic about this year's market conditions," adding, "Despite the group companies having already secured sufficient work due to large-scale orders in 2021, they set the 2022 order guidance at a relatively high level."

Looking at recent order volumes, ship prices are also being decided at high levels. Hyundai Samho Heavy Industries announced on the 5th that it had secured orders for six 15,000 TEU-class container ships (1.2976 trillion KRW), and the contract amount is estimated to have a premium of more than 10% compared to the market price. The Clarkson Newbuilding Price Index surpassed 130 points in March, 140 points in July, and 150 points in October, reaching 154.2 points at the end of last year. Kyunga Um, a researcher at Shin Young Securities, assessed, "Shipowners seem to be leaning towards executing investments rather than waiting due to high ship prices," and added, "Quantitative growth in the new ship order market is expected this year."

Since excess orders were already achieved last year, selective orders focusing on price are possible this year, which is also positive. Additionally, as energy prices continue to rise, orders for high value-added LNG ships are expected to increase. Furthermore, with recent downward trends in iron ore prices, the reversal of the 'provision due to increased steel plate prices' reflected in the second quarter of last year can also be anticipated.

However, Hyundai Heavy Industries is expected to incur a deficit in the fourth quarter of this year due to provisions related to the wage lawsuit last year. Hyundai Heavy Industries recorded a deficit of 319.5 billion KRW up to the third quarter of this year.