Big Order Placements Expected in Remaining 2 Months
The author is an analyst of Shinhan Investment Corp. He can be reached at eoyeon.hwang@shinhan.com. -- Ed.
3Q20 operating loss of KRW13.4bn better than expected
Samsung Heavy Industries posted operating loss of KRW13.4bn (continued loss QoQ) on sales of KRW1.7tr (-0.9% QoQ), lower than the consensus estimate (KRW64.1bn loss). The company booked one-off reversal of KRW65bn from the change order for offshore projects and lower heavy plate prices, and one-off cost of KRW27bn due to wage hikes.
Sales declined QoQ despite the robust order intake of 2017-2019 because of: 1) fewer working days; and 2) postponement of the BP Mad Dog Phase 2 project. BP’s Mad Dog 2 project (Argos deep-water platform) was put on hold in 2Q20 as the inspectors were withdrawn due to the COVID-19 outbreak. Sales from the project will likely be recognized in earnest from 4Q20.
2020 order intake forecast at USD6.16bn (-13.3% YoY)
Samsung Heavy Industries is projected to secure order intake of USD6.16bn (-13.3% YoY) for the full year, achieving 73.3% of annual guidance of USD8.4bn. Order intake for the year to 3Q20 stands at a lackluster USD1bn (-76.2% YoY). In the remaining two months, we expect order placements for eight LNG carriers from the Mozambique project (USD1.5bn) and ten ice-breaking LNG carriers from the Arctic LNG 2 project (USD3.1bn).
Global order placements dropped 49.4% YoY amid deteriorating market conditions caused by COVID-19. We expect Samsung Heavy Industries to record the highest order achievement rate among the top four domestic shipbuilders owing to its selective focus on strategic projects.
Retain HOLD
We retain our HOLD rating on Samsung Heavy Industries. Despite its lead in order wins among the top four domestic shipbuilders, we remain concerned about the company’s continuing losses, litigation issues, and the delayed sale of drillships weighing on financials.