Excessive Concerns?
The “Samsung Heavy Industries shock” made nearly 4 trillion won (US$3.65 billion) of major shipbuilding stock market caps disappear in the last three days. Some express concerns over poor performance while others take precautions against excessive concerns. However, it is not enough to prevent the bargain sale which seems nearly a panic.
On December 8, Samsung Heavy Industries and Hyundai Heavy Industries closed at 7,640 won (US$7) and 126,500 won (US$116), respectively, down 11.2 percent and 7.3 percent from the previous day. The drop-off rate of Samsung Heavy Industries reached 39.4 percent from the 6th to the 8th. Other shipbuilders also remained bearish for the three days – Hyundai Heavy Industries minus 17.3 percent, Hyundai Mipo Dockyard minus 12.7 percent, Hanjin Heavy Industries & Construction minus 18.2 percent and Daewoo Shipbuilding & Marine Engineering minus 6 percent. The market cap of five major shipbuilding companies worth 3.87 trillion won (US$3.54 billion) vanished into the air.
After Samsung Heavy Industries announced on the 6th that it plans to raise 1.5 trillion won (US$1.37 billion) by selling new shares in a rights offering and expects to post an operating loss next year, shipbuilding stocks have been on the decrease.
Samsung Heavy Industries expects that it will post 490 billion won (US$447.49 million) in operating loss this year and 240 billion won (US$219.18 million) next year. Other shipbuilders are also expected to face difficulties. Hyundai Heavy Industries’ operating profit is forecast to drop from 476.1 billion won (US$434.79 million) this year to 250.2 billion won (US$228.49 million) next year. Daewoo Shipbuilding is expected to record an operating profit of 1.19 trillion won (US$1.08 billion) this year, turning into profit-making, and then see its operating profit decrease to 281.3 billion won (US$256.89 million) next year.
However, there are expectations that market conditions will improve even though it can be at a slow pace. The amount of orders, which is a leading indicator of shipbuilding market conditions recovery, showed minus 17 percent on-year as of November, up from minus 25.2 percent of trough in May.