2011 Worse than Expected for South Korean Shipyards Hyundai and Samsung [REPORT]

SEOUL -(Dow Jones)- The world’s two biggest shipbuilders, Hyundai Heavy Industries Co. (009540.SE) and Samsung Heavy Industries Co. (010140.SE), reported worse-than-expected earnings for 2011 as sales of high-end ships fell and the cost of raw materials rose, and analysts expect the industry to continue to struggle in the first half of this year as the global economy stalls.

Hyundai Heavy said Thursday its fourth-quarter net profit slumped 91% to KRW71.3 billion ($64 million) from KRW826.7 billion a year earlier. Its full-year net profit fell 31% to KRW1.946 trillion.

Gains in the won led to foreign-exchange losses of KRW36 billion in the quarter, while the donation of KRW153 billion to a charity foundation also weighed, the firm said in a statement.

Operating profit declined 62% to KRW404.6 billion in the December quarter from KRW1.077 trillion, while sales were up 5.1% at KRW6.751 trillion from KRW6.423 trillion.

“In the past, the shipbuilding and non-shipbuilding industries would be buffers against each other as they had different business cycles,” said Yeom Dong-eun, an analyst at HMC Investment Securities. But this won’t be the case in the first half because of the continuing European debt crisis and a slowing Chinese economy, he said.

The company’s new orders rose 47% to $25.32 billion in 2011 from $17.2 billion, while sales were up 12% at KRW25.02 trillion from KRW22.408 trillion. For 2012, it is targeting a 21% increase in new orders to $30.55 billion and a 10% rise in sales to KRW27.573 trillion.

Hyundai’s full-year operating profit fell 27% to KRW2.613 trillion.

The Ulsan-based shipyard expects shipbuilding orders of $9.11 billion in 2012, a decline of 16% amid the euro zone’s debt worries, but it has targeted a 16% increase in orders for offshore facilities to $5.2 billion.

Hyundai also expects increased sales in its electrical systems and engine and machinery businesses this year as it is in talks over projects in major markets including the U.S. and Europe.

The firm has an accumulated order backlog of 161 ships valued at $22.5 billion to be delivered over the next two years. It said it would distribute KRW245.15 billion in year-end dividends in April.

Samsung Heavy’s 2011 net profit fell 12% as it has been building fewer high-end vessels because of conditions in the industry.

Net profit for the 12 months ended Dec. 31 fell to KRW863.9 billion from KRW976.5 billion. Full-year operating profit declined 20% to KRW1.102 trillion from KRW1.378 trillion, while sales were up 2.2% at KRW13.359 trillion from KRW13.071 trillion.

The company didn’t provide fourth-quarter results.

The Geojedo-based shipbuilder said it is aiming for a 12% increase in 2012 sales to KRW14.9 trillion as high-end offshore contracts secured over the past two years will be reflected in its results.

Earlier this year, Samsung Heavy said it had targeted shipbuilding and offshore-facility orders of $12.5 billion for 2012, less than last year’s $15 billion.

It said it would distribute KRW108.4 billion in year-end dividends.

Consolidated figures for the two firms are scheduled to be issued next month.

-By Kyong-Ae Choi, Dow Jones Newswires