[Click eStock] "Daewoo Shipbuilding & Marine Engineering, 2Q Earnings Below Expectations... Turnaround Expected Next Year"

[Asia Economy Reporter Myunghwan Lee] Hana Securities announced on the 17th that it maintains a buy rating and a target price of 33,000 KRW for Daewoo Shipbuilding & Marine Engineering (DSME). The firm analyzed that the recent downward trend in raw material prices raises expectations for a turnaround in the company's performance next year.

Hana Securities' analysis indicates that DSME's second-quarter results this year fell short of market expectations. The company's second-quarter sales this year recorded 1.1841 trillion KRW, a 4.9% decrease compared to the previous quarter. The decline in scale was deemed inevitable due to the subcontractors' union strike and sanctions on Russia. The launching of Dock 1 was delayed by about five weeks, and operational losses due to production disruptions were also incurred.

Operating losses amounted to 99.5 billion KRW, with the deficit narrowing somewhat compared to the previous quarter. While the burden of fixed costs continued due to the decrease in sales, a one-time cost of approximately 67 billion KRW was reflected due to the impact of Russian sanctions. However, it was noted that the deficit was not large as the increases in raw material and labor costs were proactively reflected in the first quarter. Hana Securities expects that the ongoing operating deficit trend due to fixed cost burdens will continue in the second half of the year.

Hana Securities pointed out that the timing of DSME's performance turnaround has been somewhat delayed due to domestic and international issues. It also evaluated that achieving the annual sales guidance of 6.6 trillion KRW, presented earlier this year, would be difficult based on the sales trend in the first half. The decrease in sales caused by the strike and the impact of delay compensation fees were analyzed as factors that could be offset depending on the progress of the work.

Researcher Jaeseon Yoo of Hana Securities stated, "The risks related to Russian sanctions have been largely alleviated, so the possibility of additional costs is not high," and analyzed, "As the recent downward stabilization trend in raw material prices is confirmed, expectations for a performance turnaround in 2023 may be highlighted."