Korean shipyard shares likely to rebound

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Shares of South Korea’s big three shipyards – Hyundai Heavy Industries, Samsung Heavy Industries and Daewoo Shipbuilding & Marine Engineering (DSME) – are expected to bottom out and rebound as they have clinched a series of shipbuilding orders this year.

Analysts say they are likely to ink more orders in the fourth quarter to achieve their order goals set at the beginning of the year.

According to the Korea Exchange (KRX), shares of DSME rose 5.4 percent to mark a record high in a year on the Oct. 2 session closing.

Shares of other two shipbuilders, Hyundai Heavy and Samsung Heavy, also climbed 3.66 percent and 1.85 percent, respectively, whereas the benchmark KOSPI dropped 29.35 points, or 1.25 percent, at the day’s closing.

Their uptrend was led by foreign investors.

Foreigners bought more than 2.2 million DSME shares in September to occupy 9.4 percent for the shipbuilder’s total shares. They accounted for 7.5 percent in August. Their rush to Hyundai Heavy and Samsung Heavy shares also resulted in increases of 0.6 percentage points and 0.4 percentage points, respectively.

According to multiple data sources, the big three clinched 88 percent of total liquefied natural gas (LNG)-powered carrier orders and 87 percent of very large crude carrier (VLCC) orders between January and August.

Experts said the global trend of eco-friendly vessels boosted the big three’s surging sales in the period because their recent contracts were centered in building eco-friendly vessels ahead of the International Maritime Organization’s (IMO) enhanced regulation on emissions of sulfur oxides, which is scheduled to take effect Jan. 1, 2020.

Environment groups claim vessels now emit more pollutants than vehicles around the world, and the IMO plans to tighten its sulfur oxide allowance to 0.5 percent from the current 3.5 percent beginning in 2020.

“The IMO’s tightened regulations will drive ship owners to place shipbuilding orders. Their orders will be centered in Korean shipyards,” Hana Financial Investment analyst Park Moo-hyun said.

A Hyundai Heavy official said the shipyard and its two shipbuilding subsidiaries have so far clinched $10.4 billion worth of orders between January and September, up 68 percent from the same period last year.

“It is worth about 79 percent of its total target sales we set at the beginning of this year,” she said.

Likewise, DSME inked $4.6 billion worth of orders to build 35 ships in the period, achieving 63 percent of its target sales. Samsung Heavy also won $4.7 billion worth of orders to build 40 ships, completing 57 percent of its target.

“The big three shipyards are set to build more than 14 LNG-powered ships as an option in the fourth quarter,” Nomura Securities research center said.

“Hyundai Heavy and DSME will easily achieve their sales targets this year.”

Source: Korea Times

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