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Samsung Heavy Industries: 4Q20 Review: Huge Net Losses Stemming From Various One-offs

Samsung Heavy Industries posted 4Q20 K-IFRS consolidated revenue/OP of KRW1.67tn (-22.8% YoY)/KRW2.6bn (turn to black YoY; 0.2% OPM).

Revenue was 10.2% lower than the market consensus, but OP beat the consensus of –KRW38.9bn.

However, EBT and NP attributable to controlling interests were each below –KRW250.0bn, falling short of the consensus by wide margins.

Swing into the black with reversal of lawsuit-related provisions

SHI swung into the black with the reversal of KRW134.0bn in provisions for a lawsuit against Pacific Drilling regarding a drillship order cancellation.

However, OP stood at only KRW2.6bn, with the company setting aside provisions for an LNG carrier-related lawsuit (KRW35.0bn) and construction losses involving new orders received (KRW33.0bn).

Stripping away various one-offs, 4Q20 OP reached –KRW63.4bn, matching our estimate of -KRW63.6bn.

The massive losses in EBT and NP (to control. int.) were attributable to: (1) KRW123.0bn in provisions set for a U.S. investigation into a drillship contract with a Brazilian company and (2) KRW102.5bn in impairment losses for land/buildings in Geoje Island (Korea) and manufacturing facilities.

4Q20 new orders worth USD4.5bn: 19 LNG carriers and six tankers

The 4Q20 new order intake was USD4.5bn, making up for the slump seen until 3Q20.

The absence of offshore plant orders was disappointing, but the winning of orders for 19 LNG carriers and six tankers in the quarter put SHI’s 2020 new order wins at USD5.5bn.

Despite the massive order wins, however, annual order intake sat at only 65.5% of the USD8.4bn annual guidance.

4Q20 order wins pushed up the delivery-based order backlog by 17.5% (USD18.9bn in 3Q20→USD22.2bn in 4Q20) and sales-based order backlog to KRW12tn, which corresponds to 1.7x 2020 revenue.

2021E guidance for new orders/revenue at USD7.8bn/KRW7.1tn

SHI set 2021 new order guidance at USD7.8bn (+41.8% YoY), which includes orders for merchant vessels/offshore plants of USD4.6bn (-16.4% YoY)/USD3.2bn (no offshore plant orders received in 2020). For offshore plant orders, we assumed three order wins from Nigeria and Brazil.

Revenue guidance is KRW7.1tn, out of which KRW6.4tn will come from the existing order backlog. The remaining KRW0.7tn should hinge on SHI’s new order wins in 1Q21.
Source: Business Korea

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