[Click eStock] "Daewoo Shipbuilding & Marine Engineering, This Year Is the Last Hurdle... Target Price Down 10%"

Daishin Securities Report

At the Okpo Shipyard of Daewoo Shipbuilding & Marine Engineering in Geoje, a worker begins the morning shift with the rising sun. The COVID-19 pandemic has been ongoing for nearly two years. Countries around the world are implementing quarantine policies to overcome it and are putting all their efforts into escaping the disaster situation. The industrial landscape altered by COVID-19 is also responding swiftly. In particular, the shipbuilding industry's business environment is expected to improve in 2022. With an increase in new orders, shipbuilders' bargaining power on prices has strengthened, and investment capacity for ships to comply with environmental regulations has expanded, welcoming the new year with sparks of improvement.

Geoje ? Photo by Kang Jin-hyung aymsdream@

[Asia Economy Reporter Minji Lee] Daishin Securities maintained its market perform rating on Daewoo Shipbuilding & Marine Engineering (DSME) on the 18th and lowered the target price by 10% to 25,000 KRW. This decision was based on the judgment that the burden has increased due to the rejection of the corporate merger during a period of declining earnings.

Fourth-quarter sales are expected to reach 1.2267 trillion KRW, with an operating loss of 66.5 billion KRW, indicating a reduction in the deficit. Compared to market expectations, sales met the forecast, but the operating loss widened. Lee Dongheon, a researcher at Daishin Securities, stated, “Sales have been in a steep decline for 2 to 3 years due to poor order intake,” adding, “Although earnings are expected to increase this year compared to last year due to an increase in order backlog, growth is anticipated to be concentrated in the second half rather than the first half.”

Operating profit faces pressure from fixed costs due to decreased sales and rising costs, but the foreign exchange effect is expected to be positive. A full-scale improvement is projected to begin in 2023. Last year’s new orders are estimated at 10.8 billion USD, exceeding the annual target of 7.7 billion USD by 141%. The order backlog secured more than two years’ worth of volume, suggesting that this year will be the last challenging period.

Recently, Daewoo Shipbuilding & Marine Engineering and Korea Shipbuilding & Offshore Engineering received a final rejection in the EU’s corporate merger review. Lee said, “From the perspective of expecting financial structure improvement through the merger, financial uncertainty has increased,” but added, “However, it is important to note that among shipbuilders, LNG ship technology holds a relative advantage.” He further stated, “It is necessary to first confirm the plans for financial structure improvement and resale.”