Samsung Heavy Industries: Artic LNG Orders Missed

SHI’s sluggish order performance continued in 3Q20. While losses are believed to have narrowed in 3Q20, it is yet too early to confirm overall business environment improvement. Investor patience is required until 2Q21, when Qatar LNG-related orders are anticipated.

Maintain Hold: Order performance still weak

SHI’s 2020 YTD orders total only US$1bn (-76% y-y). Of note, six Artic LNG orders, which were expected in 3Q20, also escaped capture.

The pace of SHI’s earnings growth is expected to slow sharply from 2H21, as losses likely continue and order backlog expansion remains elusive.

3Q20 preview: Losses to narrow q-q

We estimate SHI’s 3Q20 sales at W1.94tn (+14.3% q-q). Production and delivery schedules for ships and offshore plants have proceeded normally, and sales expansion was likely achieved on a resumption in projects that had been delayed from 2Q20.

SHI’s 3Q20 operating loss is sized at W60bn, down significantly from that of last quarter (W707.7bn). Excluding one-off issues, 3Q20 operating loss ratio is estimated at 5.3%, a figure falling to less than 5% if adding in 3Q20 sales expansion effects.

Long-term outlook needed: Expect major contracts from Qatar LNG project in 1H21

We believe that a significant order performance recovery is possible from 1H21. For 4Q20, the expected number of LNG carrier orders totals just 16, all of which are related to the Mozambique LNG project. It is judged that competition is still fierce, with SHI’s competitors also facing order shortfalls.

Rather than expecting a short-term rebound, a long-term perspective is advised. Main contracts related to the Qatar LNG project are expected to be signed at end-1H21, and container/tanker orders may recover in 2H20 on the back of an anticipated global economic recovery.
Source: Business Korea