The author is an analyst for NH Investment & Securities. He can be reached at ys.jung@nhqv.com -- Ed.
Combined new orders for the three major domestic shipbuilders in 2023 are expected to exceed guidance. Orderbooks should expand in 2024, led by strong LNGC demand. Results for 3Q23 show full-scale revenue growth for major shipbuilders.
LNGC orders to be confirmed in 2024
New orders at the three major domestic shipbuilders in 2023 reached US$30.8bn as of end-October, or 89% of their US$34.6bn target. Considering likely further orders in 2H23, including for the second LNGC order intake from Qatar, a floating LNG facility (FLNG), and military vessels, 2023 new orders are expected to exceed the companies’ guidance.
For 2024, the merchant ship order environment looks unfavorable and domestic shipbuilders' short-term delivery slots are limited, so shipbuilders are likely to set conservative targets. That said, order backlogs (sales basis) should climb further. Around 80 LNGCs are expected to be ordered globally in 2024, including orders for US LNG exports. Offshore plants and domestic maritime defense projects are also key order pipelines.
3Q23 results confirm revenue growth for large shipbuilders
In 3Q23, despite fewer working days, sales at major shipbuilders such as SHI and Hanwha Ocean rose q-q thanks to greater shipbuilding volume on strengthened process management and expanded outsourcing. Structural earnings growth should build in 4Q23 as LNGC construction volume begins to ramp up. On the cost side, increases in labor costs and raw material prices (including steel plate), are already reflected in prices, so there is limited potential for additional provisioning. Profit growth is set to accelerate into 2H24, as low-margin vessel deliveries are mostly completed and the share of LNGC sales should increase throughout 2024.
Shipbuilders' share prices have experienced a correction due to uncertainty around new orders and supply-demand pressures from Hanwha Ocean's capital increase. However, a share price rebound is expected as the Hanwha Ocean event is wrapping up and new LNGC orders are anticipated.