Almost There
With relatively good performance due to no unfavorable factors of offshore plants, Hanjin Heavy Industries & Construction (HHIC) is happy about the performance of its overseas Subic Bay shipyard.
HHIC’s Subic Bay shipyard in the Philippines, which has been operating for six years now, has achieved 70 percent of the 2015 new order target with the orders of large container ships. In contrast, HHIC’s Youngdo yard in Busan, which is considered the beginning of the company, has shown some 20 percent of the new order achievement rate.
According to industry sources on Oct. 6, HHIC’s Subic Bay shipyard won contracts worth US$1 billion (1.17 trillion won) as of the end of last month. Accordingly, it is expected to achieve the 2015 target of US$1.2 billion (1.4 trillion won) with ease. The Subic Bay shipyard has received orders to build three 20,000 TEU container ships for the first time this year and six 11,000 TEU vessels. Considering the fact that the shipyard obtained the US$56 million (653.52 billion won) contracts to build a total of six ships last year, it has won orders, which are nearly two times as much as last year, in the third quarter alone.
The strengths of the Subic Bay shipyard are a large site, 10 times that of the Youngdo yard, and cost competitiveness, with labor costs lower than China. With a floor space of 80,000 peyong (264,000 m2), the Youngdo yard cannot build vessels with more than 6,000 TEU. Therefore, building ships with more than 10,000 TEU, which fits with the current mega ship trend, is only possible in the Subic Bay shipyard, said a HHIC spokesperson.
The labor cost also stands at 400,000 won (US$343) a month per person. The figure is much lower than an average of 5 million won (US$4,284) in Korea or some 1 million won (US$857) in China. An official from HHIC said, “As an alternative of the Youngdo yard, the company has invested in the Subic Bay shipyard for about a decade to make it technologically competitive. All our hard work finally paid off.”
Unlike the Subic Bay shipyard that has become stable, however, HHIC’s Youngdo yard seems unstable. The shipyard received US$69 million (805.23 billion won) orders for 15 vessels in 2013 when it resumed building ships. Last year, it saw a slightly better performance with 11 ships at US$77 million (898.59 billion won). However, the shipyard only won US$260 million (303.42 billion won) contracts for eight ships as of the end of Sept. this year. The cumulative figure is a mere 22 percent of the target of US$1.2 billion (1.4 trillion won). Of the eight ships, two ships are liquefied petroleum gas (LPG) carriers, while another two ships are 1,900 TEU ships, and the remaining four ships are special vessels.
Despite poor performance in the Youngdo yard, HHIC’s performance prospects in the third quarter are not dim. This is partly due to the favorable turn in the construction sector and the company’s efforts to reduce deficits.
According to data from FnGuide, a securities information service provider, sales and operating profits of HHIC in the third quarter are estimated at 666.2 billion won (US$570.87 million) and 14.9 billion won (US$12.77 million). Although sales decreased from the second quarter, operating profits turned positive. FnGuide expects that Hyundai Heavy Industries will post 26.1 billion won (US$22.37 million) in operating profits, while Samsung Heavy Industries will post 29.7 billion won (US$25.45 million. However, Daewoo Shipbuilding & Marine Engineering is expected to see losses of 35 billion won (US$3 million). In terms of operating profits, HHIC surpasses the nation’s big three shipbuilders.