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Samsung Heavy Industries Cannot Smile despite Shipbuilding Market Recovery

Although the Korean shipbuilding industry is reviving splendidly with record-breaking orders, Samsung Heavy Industries alone is expected to remain in the red in 2021.

The company announced on March 26 that it has won orders for 20 15,000-TEU container ships worth 2.8 trillion won from a client in Panama. It is the largest ever single shipbuilding contract in the history of the world shipbuilding industry. Samsung Heavy Industries has won orders to build a total of 42 ships, including three Suez Max crude oil carriers, for US$5.1 billion in 2021. In the first quarter of the year alone, the company attained 65 percent of its US$7.8 billion order intake target for 2021. Its order backlog increased to US$25.8 billion, the highest in the last five years.

Samsung Heavy Industries has won 34 out of the 66 12,000-TEU (Neopanamax) or larger container ships awarded around the world in 2021, according to market analysis firm Clarkson Research. Since 2019, the company has won 40 out of the 138 large container ships ordered globally.

Although Samsung Heavy Industries has shown a solid performance in order taking, its business outlook for 2021 is not bright. The company is expected to post 6,999.4 trillion won in sales and 71.8 billion won in operating loss in 2021, according to financial information company FnGuide. Its sales will grow 2.03 percent on year, but it is expected to remain in the red. It posted operating losses of 1.54 trillion won in 2020, extending its loss-making streak to six years since 2015.

The company is weighed down by risks from the marine plant business. Earlier this month, it lost a lawsuit against Sweden’s Stena Corp. The arbitration court in London ordered Samsung Heavy Industries to return a total of 463.2 billion won including the down payment to Stena, which canceled a contract to build a semi-submersible drilling facility.

With the decision, Samsung Heavy Industries additionally reflected 287.7 billion won in provisions in its financial statements of 2020.

“Samsung Heavy Industries has been suffering losses for the sixth consecutive year and is unlikely to yield a surplus in the short term,” a researcher at NH Investment & Securities said. “In particular, the company suggested it would expand the proportion of offshore plants in its business plan for 2021. This is cause for concern for investors, given that additional costs are being incurred from drilling ship projects it won in 2013.”
Source: Business Korea

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