Posted on 07 Aug 2020
The author is an analyst of KB Securities. He can be reached at newday@kbfg.com. -- Ed.
Maintain BUY and raise target price to KRW110,000
We raise our 12m TP by 10.0% to KRW110,000 (12m fwd BVPS x 0.68x target P/B) from KRW100,000 to accommodate (1) higher-than-expected 2Q20 earnings, (2) an increase in total equity stemming from upward revisions to our earnings forecast and (3) a decline in COE (6.94%→6.75%) due to changes in 12m fwd period and assumptions (e.g., RFR, beta and TGR). We maintain BUY because our new TP implies 26.3% upside (vs. Aug 4 closing price).
2Q20 review: OP above market consensus
KSOE delivered 2Q20 K-IFRS consolidated revenue of KRW3.93tn (-0.1% YoY) and OP of KRW92.9bn (+50.0% YoY; 2.4% OPM). Revenue was slightly below the market consensus but OP was 55.9% higher because of a KRW31.0bn one-off gain comprised of (1) a reversal of provision for construction losses due to a decline in steel prices and (2) Defense’s reversal of damages for late delivery. However, EBT was below the market consensus, limited by (1) a FX translation loss, (2) financial costs and (3) a cost incurred for the suspension of the Gunsan Shipyard.
1H20 new orders reach only 13.8% of full-year order guidance
HHI Group’s three shipbuilders (Hyundai Heavy Industries, Hyundai Mipo Dockyard and Hyundai Samho Heavy Industries) saw their 1H20 new orders sink 37.6% YoY to USD2.7bn, reaching only 13.8% of this year’s guidance. By company, Hyundai Mipo Dockyard is faring well compared to the others, achieving 25.6% of its order guidance, with Hyundai Heavy Industries at 12.8% and Hyundai Samho at 6.5%.
New order flow after July and decline in steel prices considered positive
Fortunately, order flows are emerging from the doldrums in 2H20. Hyundai Heavy Industries and Hyundai Samho won orders for two LNG carriers each at USD186mn/vessel on July 31, and Hyundai Mipo won orders for four PC tankers and one RoPax vessel totaling USD234mn, pushing up its cumulative orders to USD3.68bn. Also, declining heavy plate prices (KRW30,000/ton cut agreed between shipbuilders and steelmakers) should be positive for earnings.
Source:Business Korea
