KSOE: Right Direction, But Wrong Route & Speed

Korea Shipbuilding & Offshore Engineering: Massive net losses on unfavorable FX effects
KSOE posted 4Q22 K-IFRS consolidated revenue of KRW4.94tn (+10.9% YoY) and OP of KRW117.1bn (TTB YoY; 2.4% OPM).

Revenue missed the market consensus by 8.5%, but OP beat by 11.4%. Stripping out various one-off profits of KRW64.8bn in 4Q22, however, adj. OP amounted to KRW52.3bn—half the expected figure.

EBT and NP (to control. int.) came in at -KRW301.9bn and -KRW96.6bn, primarily due to FX-related net loss of KRW423.4bn (i.e., decline in KRW/USD rate).

By subsidiary, Hyundai Samho Heavy Industries compensated for sluggish earnings at Hyundai Heavy Industries and Hyundai Mipo Dockyard.

Hyundai Heavy Industries: OP remained in positive territory

Subsidiary HHI posted 4Q22 K-IFRS consolidated revenue of KRW2.68tn (+8.4% YoY) and OP of KRW22.1bn (TTB YoY; OPM 0.8%).

Revenue missed the consensus by 10%, but OP beat. Excluding one-offs, adj. OP amounted to KRW36.6bn.

Increases in shipbuilding volume and offshore projects (i.e., Brazil’s P-78 FPSO) contributed to revenue growth, while the increase in revenue and higher shipbuilding prices allowed for OP to remain in positive territory for the second consecutive quarter.

However, EBT and NP (to control. int.) came in at -KRW161.1bn and -KRW162.5bn, respectively, primarily due to FX-related net loss (-KRW177.6bn).

Hyundai Mipo Dockyard: Turned to loss after just one quarter

HMD posted K-IFRS consolidated revenue of KRW1.02tn (+18.9% YoY) and operating loss of KRW54.7bn (reduced losses YoY; OPM -5.3%).

Revenue beat the consensus by a small margin, but OP returned to negative territory after just one quarter, missing the market consensus by a wide margin. The scale of operating losses was also much higher than our estimate (the sole negative OP forecast among consensus).

The booking in advance of expected increases in labor expenses and subcontractor processing fees resulted in one-off expenses of KRW19.4bn. Stripping out such one-off expenses, adj. OP amounted to –KRW35.3bn.

EBT came in at –KRW206.4bn on FX-related losses (-KRW151.7bn).

Moving in right direction, but wrong route and speed

4Q22 earnings figures for all major shipbuilders excl. DSME have now been disclosed. Despite high expectations for earnings improvements at shipbuilders, earnings overall have fallen short.

The rise in shipbuilding price and large-scale order wins in 2021-2022 should allow for gradual improvements to earnings.

However, share-price volatility may increase on higher labor costs, labor shortage, faster-than-expected drop in FX rates, and excessively high expectations over the profitability of order backlogs.

Moreover, differences in accounting policies as well as FX hedging (method, volume) make simple comparisons among shipbuilders difficult. A longer term approach in waiting for earnings improvements is warranted.
Source: Business Korea