South Korea’s Samsung Heavy Industries is not expected to return to the black until 2023, a top shipbuilding analyst has said.
Despite the strong newbuilding orders seen this year and an improvement in newbuilding prices, SHI's management still expects to post a loss next year, said Nomura analyst Jaehyung Choi.
The company blames the burden of increased fixed costs amid a delayed offshore new order pipeline plus further provisioning for steel price hikes.
Choi, who held a conference call with SHI management earlier this week, said the shipbuilder was still confident of reaching its new order target for 2021.
“As of August 2021, Samsung has recorded $7.1bn worth of new orders which is 78% of 2021 new order target,” Choi said in a note to investors.
“According to Samsung’s management, it is confident of recording more than its 2021 new order target of $9.1bn considering its potential fourth quarter order pipeline.”
These new orders include Qatar’s raft of LNG newbuildings, outstanding LNG carrier newbuilding options, shuttle tankers and orders worth $2bn related to the Bongo FPSO project.
“Samsung’s management was positive on overall shipbuilding business and the order environment considering LNG ordering remains strong,” Choi said.
In addition, they pointed to the many outstanding containership newbuilding options as well as replacement demand for tankers whose age is over 15 years due to the need to meet environmental regulations.
“Even if there are macro uncertainties related to tapering by central banks, Samsung’s management expects the new order upcycle to continue in 2022 owing to the increase in replacement demand to meet environmental regulations,” said Choi.
In late July, SHI posted a second-quarter loss of KRW 447bn ($378.6m) despite revenue staying largely unchanged year-on-year at KRW1trn.
The company is currently in the process of a KRW1.2tn of rights issue involving 250m of new shares, which are expected to have an issuance price of KRW 4,950. The price is expected to be finalised by 25 October with the new shares listed on 19 November.
SHI plans to use KRW 737.5bn of the funds raised for its business operation including the development of eco-friendly technology and ESG-focused operations.
Meanwhile, the remaining KRW 500bn will be employed for repaying debt which will improve the shipbuilder’s balance sheet with its debt-to-equity ratio to fall from 321% to 198%.
