New Order Wins Exceed Annual Target
The author is an analyst of KB Securities. He can be reached at newday@kbfg.com. -- Ed.
Maintain BUY; revise target price down to KRW100,000
We revise our 12m TP down 9.1% from KRW110,000 to KRW100,000 (12m fwd BVPS x 0.82x target P/B). ROE was lifted, as new order wins should exceed USD20.0bn this year (part of bull-case scenario), but this was offset by changes in earnings estimates, total equity (reflecting updated 12m fwd base period) and market rate (affecting RFR, TGR). We maintain BUY, as the stock offers 26.9% upside after the recent decline.
Q22 forecast: Turn to black in 3Q22
We forecast 3Q22 K-IFRS consolidated revenue at KRW4.61tn (+29.6% YoY) and OP at KRW62.8bn (-55.7% YoY; 1.4% OPM), surpassing the market consensus. We see a turn to black after three straight quarters of significant losses (e.g., KRW265.1bn loss in 2Q22 due to steel product price hikes). EBT and NP should also enter positive territory, albeit slightly.
Earnings should be driven by shipbuilding prices/volume, FX effects, stabilizing commodity prices
A rise in shipbuilding prices as well as shipbuilding volume should drive earnings improvement. Also, we believe favorable FX effects (avg. KRW/USD rate: 1,260 in 2Q22→1,335 in 3Q22) on certain unhedged orders will contribute to better results. No provisions for construction losses are expected to be booked for 3Q22, as commodity prices (e.g., heavy plate) are stabilizing. Furthermore, some provisions may be reversed going forward.
Shipbuilding/offshore new order wins exceed annual target
New order wins (shipbuilding/offshore plant) for the year up to August totaled USD19.4bn (HHI: USD8.5bn; Samho Heavy: USD7.7bn; Mipo: USD3.2bn), exceeding USD17.5bn annual order guidance. Including wins announced in September, orders total USD20.0bn (114% of guidance). We see additional order wins of USD3.8bn by year-end, but order momentum should slow in comparison to the previous three quarters.