Hyundai Heavy Industries profit may up 27% in Q2
Hyundai Heavy Industries Co., the world’s biggest shipbuilder, and its two closest rivals may report a combined 27 percent profit gain this quarter as partial payments for vessel orders increase, analysts estimated.
Profit may jump to 953.2 billion won ($780 million) for Hyundai, Daewoo Shipbuilding & Marine Engineering Co. and Samsung Heavy Industries Co., from 750.7 billion won in the prior quarter, according to estimates compiled by Bloomberg. Hyundai and Samsung Heavy posted second-quarter profit declines.
“The dark shadows that hovered over the ship industry have started to clear up,” Cho In Karp, an analyst at Good Morning Shinhan Securities Co., said in Seoul. “Ship financing appears to be recovering.”
Ship owners are increasingly taking deliveries of their vessels amid signs of a recovery in the global economy and credit markets. Bulk freight rates have tripled this year and weekly container rates rose in June for the first time since April 2008, according to the Howe Robinson Container Index.
Ulsan, South Korea-based Hyundai Heavy, which won a vessel order for the first time in 10 months in July, has gained 7.5 percent this year. Samsung Heavy, based in Seoul, has surged 43 percent, and Daewoo Shipbuilding increased 45 percent.
The stocks have estimated price-to-earnings ratio of 6 times to 9.3 times, lower than the 14 times average of the benchmark Kospi Index.
Cheap Stock
“If you look at valuations, Hyundai Heavy is quite cheap and worth buying,” Cho said. “With signs that the worst may be over for the economy, shipping lines don’t have a lot of reasons to ask for delays.”
The three yards said in separate e-mailed statements that it is too early to forecast third-quarter earnings.
Shipyards typically receive payments over a 10-month period as they build the vessels. They incur costs when shipping lines ask for delivery and payment delays because they have to pay for raw materials, including steel plates, from their own coffers.
Samsung Heavy and Hyundai Heavy may have agreed to delay as much as 15 percent of their contracts, said Kim Hyun, a Seoul- based analyst at LIG Investment & Securities Co.
Hyundai Heavy posted a 40 percent plunge in second-quarter income on July 24, while Samsung reported a drop of 10 percent. Daewoo Shipbuilding earnings gained 80 percent on hedging gains.
“Looking at available delivery schedules, it’s clear that there have been delays and that affected their net figures for the second quarter,” Kim said. “We may be over the worst.”
Order Backlogs
The three Korean yards had order backlogs accounting for 21 percent of the world’s total as of June, according to Clarkson Plc, the largest shipbroker. About $2.19 million of secondhand vessels were sold in June, 25 percent more than the average $1.75 million in the first five months, Clarkson data showed.
“There seems to be more activity in the secondhand ship market,” said Good Morning’s Cho. That’s an indication “things have bottomed out.”
Former Federal Reserve Chairman Alan Greenspan said Aug. 2 that U.S. economic growth may resume at a rate faster than most economists had forecast. Manufacturing in China, the biggest contributor to global growth, climbed for a fifth month in July.
Profit may jump to 953.2 billion won ($780 million) for Hyundai, Daewoo Shipbuilding & Marine Engineering Co. and Samsung Heavy Industries Co., from 750.7 billion won in the prior quarter, according to estimates compiled by Bloomberg. Hyundai and Samsung Heavy posted second-quarter profit declines.
“The dark shadows that hovered over the ship industry have started to clear up,” Cho In Karp, an analyst at Good Morning Shinhan Securities Co., said in Seoul. “Ship financing appears to be recovering.”
Ship owners are increasingly taking deliveries of their vessels amid signs of a recovery in the global economy and credit markets. Bulk freight rates have tripled this year and weekly container rates rose in June for the first time since April 2008, according to the Howe Robinson Container Index.
Ulsan, South Korea-based Hyundai Heavy, which won a vessel order for the first time in 10 months in July, has gained 7.5 percent this year. Samsung Heavy, based in Seoul, has surged 43 percent, and Daewoo Shipbuilding increased 45 percent.
The stocks have estimated price-to-earnings ratio of 6 times to 9.3 times, lower than the 14 times average of the benchmark Kospi Index.
Cheap Stock
“If you look at valuations, Hyundai Heavy is quite cheap and worth buying,” Cho said. “With signs that the worst may be over for the economy, shipping lines don’t have a lot of reasons to ask for delays.”
The three yards said in separate e-mailed statements that it is too early to forecast third-quarter earnings.
Shipyards typically receive payments over a 10-month period as they build the vessels. They incur costs when shipping lines ask for delivery and payment delays because they have to pay for raw materials, including steel plates, from their own coffers.
Samsung Heavy and Hyundai Heavy may have agreed to delay as much as 15 percent of their contracts, said Kim Hyun, a Seoul- based analyst at LIG Investment & Securities Co.
Hyundai Heavy posted a 40 percent plunge in second-quarter income on July 24, while Samsung reported a drop of 10 percent. Daewoo Shipbuilding earnings gained 80 percent on hedging gains.
“Looking at available delivery schedules, it’s clear that there have been delays and that affected their net figures for the second quarter,” Kim said. “We may be over the worst.”
Order Backlogs
The three Korean yards had order backlogs accounting for 21 percent of the world’s total as of June, according to Clarkson Plc, the largest shipbroker. About $2.19 million of secondhand vessels were sold in June, 25 percent more than the average $1.75 million in the first five months, Clarkson data showed.
“There seems to be more activity in the secondhand ship market,” said Good Morning’s Cho. That’s an indication “things have bottomed out.”
Former Federal Reserve Chairman Alan Greenspan said Aug. 2 that U.S. economic growth may resume at a rate faster than most economists had forecast. Manufacturing in China, the biggest contributor to global growth, climbed for a fifth month in July.
