Only the Strong Survive
January 17, 2013 Industry Report
Shipbuilding (Neutral)
Only the strong survive
Offshore orders to drive growth
The shipbuilding industry is in a situation similar to that of 2002. In 2013, plunging order volume and weak new building prices are fueling intensifying competition. In 2002, shipbuilding shares rose because of an increase in orders, but then quickly fell on concerns over weak new building prices, which caused earnings to stagnate. For a period in 2002, shipbuilders went into red. There is a big difference between the shipbuilding market of 2002 and 2013, however. In 2013, a few, major shipbuilders with an edge in the construction of offshore plants are expanding order backlogs due to growing demand for offshore plants. We anticipate investments in offshore E&P projects will continue to rise, as we expect oil prices will remain high. We anticipate major shipbuilders will offset sluggishness in the commercial vessels market with their offshore-plant businesses.
Daewoo Securities Co., Ltd.
Ki-jong Sung +822-768-3263 kijong.sung@dwsec.com Ryan Kang +822-768-3065 ryan.kang@dwsec.com
Three major catalysts in 2013
1) Increase in new orders despite depressed market conditions. 2) Improved cash flow and balance sheets. 3) Growing competitive gap between shipbuilders due to accelerated restructuring.
Historic low P/B presents attractive valuations
We expect Korean shipbuilders will be able to maintain their competitive edge regardless of the depressed shipbuilding market. Although shipbuilding shares currently trade at a P/B of 1.0x, we believe they have the potential trade at a P/B of 1.2x. We recommend Hyundai Heavy Industries (009540 KS/Buy/TP: W280,000), and Samsung Heavy Industries (010140 KS/Buy/TP: W46,200) out of the large shipbuilders. We find Hyundai Mipo Dockyard (010620 KS/Buy/TP: W148,000) to be the best among shipbuilders that focus on mid-to-small vessels. We raise our target price on Samsung Heavy Industries by 5% to W46,200 to
Shipbuilding (Neutral)
Only the strong survive
Offshore orders to drive growth
The shipbuilding industry is in a situation similar to that of 2002. In 2013, plunging order volume and weak new building prices are fueling intensifying competition. In 2002, shipbuilding shares rose because of an increase in orders, but then quickly fell on concerns over weak new building prices, which caused earnings to stagnate. For a period in 2002, shipbuilders went into red. There is a big difference between the shipbuilding market of 2002 and 2013, however. In 2013, a few, major shipbuilders with an edge in the construction of offshore plants are expanding order backlogs due to growing demand for offshore plants. We anticipate investments in offshore E&P projects will continue to rise, as we expect oil prices will remain high. We anticipate major shipbuilders will offset sluggishness in the commercial vessels market with their offshore-plant businesses.
Daewoo Securities Co., Ltd.
Ki-jong Sung +822-768-3263 kijong.sung@dwsec.com Ryan Kang +822-768-3065 ryan.kang@dwsec.com
Three major catalysts in 2013
1) Increase in new orders despite depressed market conditions. 2) Improved cash flow and balance sheets. 3) Growing competitive gap between shipbuilders due to accelerated restructuring.
Historic low P/B presents attractive valuations
We expect Korean shipbuilders will be able to maintain their competitive edge regardless of the depressed shipbuilding market. Although shipbuilding shares currently trade at a P/B of 1.0x, we believe they have the potential trade at a P/B of 1.2x. We recommend Hyundai Heavy Industries (009540 KS/Buy/TP: W280,000), and Samsung Heavy Industries (010140 KS/Buy/TP: W46,200) out of the large shipbuilders. We find Hyundai Mipo Dockyard (010620 KS/Buy/TP: W148,000) to be the best among shipbuilders that focus on mid-to-small vessels. We raise our target price on Samsung Heavy Industries by 5% to W46,200 to