South Korea’s Hyundai Heavy Industries likely saw a peak in newbuilding orders in 2022, according to a top shipbuilding analyst.
Nomura analyst Eon Hwang expects total orders in 2023 to decline 14.8% year on year to $13bn and decline a further 17.2% year on year in 2024 to $11bn.
“Though we expect offshore new orders to resume, the decline in shipbuilding/engine new orders will be increasingly severe,” the Seoul-based analyst said.
“We forecast shipbuilding new orders to decrease 22.6% year year to $8.9bn in 2023,” Hwang said in a recent note to investors.
“The likely rebound in tanker orders in 2023 will not be sufficient to offset the decrease in new orders for LNG carriers and container ships,” he said.
“The [newbuilding] backlog will likely decline from 2024, following a decline in new orders and a rise in deliveries,” he added.
Recent figures from Clarksons show that while crude oil tanker orders are up 153% year on year to 184 vessels, orders for LNG carriers and container ships are down 66% and 42%, respectively.
Total newbuilding contracting is down 15% year on year to 880 vessels as of the beginning of August 2023, according to figures from the UK shipbroker.
Hwang recently downgraded HHI’s shares to neutral, owing to a recent stock price rise and concerns over a decline in 2023-2024 new orders.
“We believe HHI has reached its fair price,” he said.
Despite this, the Nomura analyst expects HHI to see a continuous earnings recovery and record an operating profit of KRW 1.4trn ($1.06bn) in 2025.
“The shipbuilding division, which currently accounts for 71.5% of overall revenue, is likely to drive the earnings growth in 2023-2025,” said Hwang.
“Owing to the rise in 2021-2023 backlog, we expect revenue to show steady growth. Profit will also likely improve as higher margin vessels would be increasingly reflected on revenue in the future.”
At the end of July 2023, HHI recorded revenue of KRW 3.1trn and an operating profit of KRW 69bn, reversing a loss of KRW 41bn seen in the first quarter.
Operating profit at HHI’s shipbuilding division’s declined 42.4% to KRW 33bn as additional costs were incurred by accelerating the construction process to meet the newbuilding schedule.
“In our view, South Korean shipbuilding companies are waiting for a strong new order momentum in the third quarter of 2023, which is an upside risk to our view,” said Hwang.
“However, we think investors will be concerned over 2024 new order decline starting from the fourth quarter of 2023, which is a downside risk.”
HHI is the world’s largest shipbuilder by capacity, track record and current orderbook. It also has a marine engine division that dominates about 35% of the global large-size vessel engine market.
