South Korean shipbuilders are expected to post positive earnings in the third quarter mainly due to cost cutting and restructuring measures undertaken to cope with challenging market conditions, industry sources said Monday.
Hyundai Heavy Industries Co., Samsung Heavy Industries and Daewoo Shipbuilding and Marine Engineering Co. (DSME), the country’s leading shipyards are all expected to be in the black for the July-September period, market watcher predicted.
They, however, said that with many yards struggling with dearth in orders, resulting in workers not building ships, sales and net earnings will be smaller compared to previous years.
FnGuide Inc., a local financial industry tracker, said market consensus for Hyundai Heavy stood at little over 4.03 trillion won (US$3.51 billion) in sales with an operating profit of 94.5 billion won in the three month period.
One of the largest shipbuilders in the world had posted profits for the first time in 10 quarters in the first three months of 2016, and has stayed in the black for seven straight quarters.
The market researcher said numbers for Samsung Heavy should remain in positive territory as well for the fifth consecutive quarter for the three months that ended in September, with sale hitting 1.81 trillion won and operating profit of 31.8 billion won.
It, however, said earnings for the two yards are partly the result of stringent restructuring efforts that include workers returning part of their salaries, and the selling off of non-core assets.
Hyundai’s sales and operating profits are all forecast to drop 54.4 percent and 70.6 percent on-year in the third quarter, with corresponding numbers for Samsung Heavy backtracking 34.7 percent and 62.2 percent, each
“In effect, the numbers seem to show recession-driven earnings for the two yards where the surplus is caused by cost saving measures and not robust business,” a market watcher said.
In the case of DSME, observers are estimating operating profits in the hundreds of billion won range, thanks mainly to the delivery of high value-added liquefied natural gas tankers in the second half of this year.
In the case of Daewoo, losses connected to maritime plants have already been factored in that could boost earnings in the third quarter.
“There has been good news related to the winning of major orders by local yards, but due to the nature of the industry, these will only be felt one or two years down the line,” the insider pointed out.
He added, in the meantime, companies have to cope with fixed expenses like wages for the near future.
To deal with current times, Hyundai Heavy has asked workers to take extended leave of absence and closed down some of its docks. Such measures have been used by Samsung and Daewoo yards as well to cut outlays,
Other indications of lean times ahead are reflected in the low new building price for ships.
According to Clarkson Research, a worldwide provider of intelligence on shipping, the new building price in August stood at 124 points, maintaining the 120 point range that has been the case for the past 16 months.
Reflecting such conditions, local yards are bracing for lean times at least till 2018 with earnings being determined by how effective cost cutting and restructuring measures work.