[Click eStock] "Samsung Heavy Industries Expected to Continue Operating Losses This Year"

KB Securities Report

[Asia Economy Reporter Minji Lee] KB Securities maintained a neutral investment opinion on Samsung Heavy Industries on the 13th. This is based on the judgment that it will be difficult to escape operating losses this year as well, amid expectations of an earnings shock in the fourth quarter.

Samsung Heavy Industries' fourth-quarter sales are analyzed to reach 1.8541 trillion KRW, an 11% increase compared to the same period last year. Operating losses are predicted to narrow to 136.8 billion KRW. However, an earnings shock is expected as operating profit will fall significantly below market expectations (-77.9 billion KRW).

Jung Dong-ik, a researcher at KB Securities, said, "In addition to the usual level of losses due to fixed cost burdens, costs related to drillships held as inventory assets, including mooring costs (30 billion KRW), valuation losses due to depreciation (10 billion KRW), and retroactive payments following wage negotiations (40 billion KRW), have acted as burdens on performance."

Last year, new orders in the merchant ship sector reached 12.2 billion USD, more than double the initial order target of 4.6 billion USD. Container ship orders were the highest with 44 vessels (5.5 billion USD), followed by 22 LNG carriers (4.4 billion USD) and 14 tankers (2.3 billion USD).

Researcher Jung explained, "However, the expected order for Nigeria's Bonga SWA FPSO (2 billion USD) did not materialize," adding, "With the schedule uncertain, the offshore plant sector is expected to inevitably experience a performance slowdown due to a lack of work."

Due to poor performance in the fourth quarter last year, Samsung Heavy Industries recorded operating losses for 17 consecutive quarters since the fourth quarter of 2017. This situation is not expected to improve easily this year either. Researcher Jung predicted, "In the merchant ship sector, there are remaining orders from the low-price period, and in the offshore plant sector, fixed cost burdens are expected to increase due to declining sales," adding, "This year's performance is forecasted to show stagnant sales (1.8% growth) with operating losses exceeding 200 billion KRW."

Meanwhile, Researcher Jung presented a target price for the company, raising it by 3.8% from the previous level to 5,500 KRW. He explained, "This reflects changes in the yields of 1-year Monetary Stabilization Bonds and 30-year Treasury Bonds, as well as adjustments in the house-level market risk premium (7.37% in 2021 → 7.16% in 2022)."