hyundai heavy shipbuilding shipyard

South Korean Shipbuilders are Taking it in the Teeth

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August 13, 2012

Image: HHI

SEOUL–The world’s top two shipbuilders on Monday posted sharp declines in their second-quarter net profit, bled by the heavy discounts they have offered since 2009 to prop up sales in the aftermath of the global financial crisis.

Shipbuilders typically book a large part of payments for vessels right before delivery, and the outlook for South Korea’s Hyundai Heavy Industries Co. (009540.SE) and Samsung Heavy Industries Co. (010140.SE) continues to be bleak through early 2013 as they deliver low-priced ships, orders which they booked two to three years earlier.

Hyundai Heavy has also revised downward its order and sales target for the year, a person familiar with the matter told Dow Jones Newswires, reflecting the slowdown in trade as the global economy remains fragile.

Hyundai Heavy, the world’s largest shipbuilder by sales, posted a 83% slump in its second-quarter net profit, hit not only by lower prices for vessels but also reduced shareholding gains from affiliates including Hyundai Oilbank.

“Most ships ordered at good prices before the 2008 financial crisis have been delivered and shipbuilders are now in the middle of delivering ships contracted years earlier at low prices,” a company spokesman said by telephone.

Consolidated net profit for the three months ended June 30 plunged to 134.1 billion Korean won ($119 million) from KRW787.5 billion a year earlier. The result was worse than the median net profit forecast of KRW378.3 billion of 11 analysts polled by Dow Jones Newswires.

The Ulsan-based shipbuilder posted a shareholding loss of KRW48.1 billion in the April-June quarter, shifting from an equity gain of KRW5.6 billion, the spokesman said.

Hyundai Heavy recently revised down its annual order target to $29 billion from $30.552 billion, the person with direct knowledge of the matter said. In the January-June period, it achieved 28% of the target.

It also revised down its sales target from KRW27.573 trillion for the year to KRW26.9 trillion, the person said.

Most of Hyundai Heavy‘s seven business divisions–including vessel engines and construction equipment–suffered declines in industry-wide demand amid the global economic slowdown, the spokesman said.

Operating profit fell 65% to KRW358.5 billion from KRW1.030 trillion while sales rose 2.3% to KRW13.700 trillion from KRW13.395 trillion.

Samsung Heavy, the world’s second-largest shipbuilder by sales, posted a 26% on-year decline in second-quarter consolidated net profit to KRW193.1 billion from KRW262.5 billion a year earlier, the company said in a statement.

Operating profit declined 22% to KRW264.3 billion from KRW339.1 billion, while sales were up 6.0% to KRW3.352 trillion from KRW3.162 trillion.

As of August 13, the company achieved 52%, or $6.5 billion, of its annual order target of $12.5 billion.

Daewoo Shipbuilding & Marine Engineering Co. (042660.SE), the world’s third-biggest shipbuilder by sales, is set to unveil its second-quarter results late August.

– Kyong-Ae Choi, (c) 2012 Dow Jones & Company, Inc.

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