New Orders Expected to Be Sluggish in 2Q20
The author is an analyst of NH Investment & Securities. He can be reached at jinmyung.choi@nhqv.com. -- Ed.
Hyundai Mipo Dockyard’s 1Q20 sales and OP met our estimates. OPM improved thanks to a favorable dollar/won rate, and there were no negative factors on the non-operating side. However, new orders are expected to be sluggish in 2Q20.
1Q20 review: Benefits from stronger dollar and lower steel prices
HMD reported 1Q20 sales of W777.3bn (+7.0% q-q, +10.3% y-y), meeting market expectations. We attribute the favorable result to large-scale order volume secured in 2H19 and the strong dollar.
Meanwhile, OP came in at W33.6bn (OPM of 4.3%), in line with our forecast. Profitability improved thanks to the strong dollar and lower steel prices. Margin growth should sustain in 2Q20.
Order performance: Sluggish q-q, but better than 1H19
While there were concerns about sluggish orders due to Covid-19, HMD booked new orders of US$550mn in 1Q20, achieving 15% of its annual target. As demand for mid-sized tankers, the firm’s main products, has continued to rise after the plunge in oil prices, the company’s operating environment is more favorable than that of other shipbuilders.
Sales to slide in 2021 if market normalization slows down
As the Covid-19 crisis remains in play, the order outlook for 2Q20 is unclear. In 1Q20, the firm was able to secure heathy new orders, as the contracts for some orders were in their final stages before Covid-19 spread. Currently, the company is trading at a low 2020E P/B of 0.5x, which reflects concerns over new orders.
If the crisis lingers and there are no signs of orders recovering until 3Q20, continuous monitoring is advised in 2021, as sales may decrease.