Projects in Russia Account for about 30% of Order Backlog
The author is an analyst of KB Securities. He can be reached at newday@kbfg.com. -- Ed.
2Q22 earnings far below market expectations
— Samsung Heavy Industries (SHI) posted 2Q22 consolidated (K-IFRS) revenue of KRW 1.426tn (-16.9% YoY) and operating loss of KRW255.8bn (loss to loss YoY; OPM -17.9%).
— Revenue missed consensus by 15.6%. Operating loss amounted to three times the consensus figure (KRW87.3bn), and two times the KB estimate (KRW120.6bn).
— EBT, however, succeeded in turning to profit (KRW32.1bn) on asset disposal gains of around KRW300bn from the sale of its Ningbo (China) subsidiary.
Sluggish performance due to sanctions against Russia, rising prices for steel materials
— Disruptions to processes at the Russia LNG carrier project due to the economic sanctions on Russia were behind the sluggish top-line performance. Taking this into consideration, SHI has lowered its 2022E revenue forecast from KRW7.0tn to KRW6.3tn.
— While the burden of fixed costs remained high amid the reduction in revenue, additional costs of KRW180bn was reflected in 2Q22 OP following the rise in prices of steel materials.
— Despite a gradual rise in shipbuilding prices and provisioning for losses, OP may remain in the red until at least 1H23 as the burden of fixed costs is expected to remain high amid sluggish revenue caused by a lack of shipbuilding volume.
1H22 new orders at USD6.3bn
— In 1H22, new orders for Shipbuilding amounted to a total of USD6.3bn for 33 ships (9 container ships, 24 LNG vessels), while that for Offshore amounted to none.
— Considering SHI’s 2022 guidance for new orders of USD8.8bn (-27.9%)—Shipbuilding USD7.3bn (-40.2% YoY) and Offshore USD1.5bn (no orders won in 2021)—the company has already achieved 71.6% of its target.
— Thanks to new orders in 1H22, the order backlog rose from KRW19.7tn at end-2021 to KRW25.3tn at end-2Q22.
— However, since projects in Russia account for approximately 30% of the order backlog (USD6.0bn or KRW7.8tn), there exists uncertainty (i.e., sanctions on Russia).