2023 Order Target Is 34% Lower than Estimated 2022 Performance
The authors are analysts of Shinhan Securities. They can be reached at idh@shinhan.com and jiunmyoung@shinhan.com, respectively. -- Ed.
2023 guidance: Solid market conditions despite order declines
Korea Shipbuilding & Offshore Engineering (KSOE) announced its guidance for 2023 at an online meeting. The guidance calls for USD18.1bn in annual order intake this year, which is 34% lower than the USD27.4bn estimated for 2022 and even 7% lower than the USD19.4bn target originally set for 2022.
The lowered guidance may reflect the company’s concerns over a downturn in market conditions, but at the same time confidence in its large order backlog. KSOE said that it will focus on maintaining order intake at fair levels without shipbuilding price cuts in 2023 and 2024.
Many questions were raised at the meeting about tanker market conditions. Tanker shipping market conditions remain favorable, but a tug of war is being played out between the shipbuilders and shipowners. There is much interest in tankers as they are the key to growth in overall shipbuilding orders. We believe the tanker market is on a clear recovery path, and LNG carrier and container ship orders will also continue on an uptrend.
Acquisition of Hyundai Samho Heavy Industries shares
KSOE disclosed its decision to buy a 15% stake in Hyundai Samho Heavy Industries (HSHI) from IMM Private Equity, which signed a deal with the company in 2017 to acquire the stake on condition that HSHI would be listed on the stock market. An agreement reached recently will relieve the company of its contractual obligation to seek the IPO of its subsidiary.
The decision has come at a time when the IPO market is in a slump and additional capital inflow is limited from IPO through the sale of old shares. The agreement has helped to remove uncertainty over the subsidiary’s IPO.
Withdrawal of subsidiary’s IPO is a positive
Countless variables of the shipbuilding sector make it difficult to gauge annual trends based solely on the company’s guidance. We believe a drop in order intake will have a limited impact on KSOE’s order backlog in 2023.
Meanwhile, the company’s decision not to seek the IPO of HSHI comes as a positive surprise. KSOE, as an intermediate holding company, was hit hard when Hyundai Heavy Industries (HHI) went public in2021, and might have taken another blow if HSHI went ahead with the IPO. The fact that investors can own HSHI, which is in for favorable market conditions, through KSOE will help to partially remove the valuation discount applied to the company.