Surging steel prices have taken their toll on Korea Shipbuilding & Offshore Engineering Co (KSOE), with the company sinking into the red.

The world’s largest shipbuilder posted a net loss of KRW 722bn ($626m) in the second quarter against consensus estimates of a profit of KRW 47bn.

Operating losses were KRW 897bn for the April to June period, compared with an operating profit of KRW 92.9bn a year ago.

“The main reason for the huge net and operating losses was due to increased cost from a surge in prices of steel plates," KSOE said in a statement.

However, the shipbuilder anticipates an improvement in results in the second half of the year as it expects to raise ship prices significantly.

It added that it had achieved 89% of its 2021 new order target by the end of the second quarter and expects a continued strong new order pipeline for containerships and LNG carriers.

As a result, KSOE management said it would now focus on profitability rather than volumes in the second half of the year, given the strong order enquiries.

KSOE is a holding company of three leading shipbuilders -- Hyundai Heavy Industries, Hyundai Mipo Dockyard and Hyundai Samho Heavy Industries.

“In our view, South Korean shipbuilders’ recent share price correction mainly due to market concerns over their second-quarter results offers a good opportunity to accumulate,” Nomura shipbuilding analyst Jaehyung Choi said.

“We believe it is a good time to accumulate stocks in South Korean shipbuilders considering that steel plate prices seem to have stabilised, which in our view should obviate the need for further provisioning.”

Seoul-based Choi also believes that the ship price/new order upcycle will likely to continue into the second half of this year and 2022.

“Samsung Heavy Industries remains our top pick in the shipbuilding sector as we expect its earnings to sequentially improve in the second quarter following its conservative accounting in the first quarter of this year,” the analyst said.

“We also like KSOE in the run-up to the listing of Hyundai Heavy Industries, considering its cheap valuations and strong second half new order pipeline.”