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Shipbuilding – Ship prices rising on energy transition and stricter regulations

Investment points for the shipbuilding sectors include: 1) rising newbuilding prices; and 2) order backlog growth (sales basis). In 2023, a slot shortage is likely to result in a decline in absolute order volume at domestic shipbuilders, but it should also lead to price hikes. Newbuilding prices should continue to rise after 2023, led by LNG carriers. Despite price hikes, order backlogs (sales basis) are steadily rising.

In 2H23, we expect to see the strengthening of LNG order momentum, backed by a US push for LNG export projects and LNG carrier orders by Qatar. Also, the emergence of liquefier FLNG facilities should help to expand the FLNG market. As the IMO and EU apply stricter environmental regulations on shipping and vessels, replacement demand for outdated ships is forecast to grow.

We maintain a Positive rating on the sector and present SHI as our sector top pick, noting its likely winning of orders for LNG carriers and FLNG facilities. SHI is the most undervalued among major domestic shipbuilders, but we expect the firm to narrow the valuation gap with competitors by winning additional offshore plant orders in 2H23 and meeting its 2023 earnings guidance.
Source: Business Korea

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