Shipyards expected to post weak Q3 earnings

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Shipyards expected to post weak Q3 earnings

Korea’s major shipyards, led by Hyundai Heavy Industries, are projected to report weaker-than-expected earnings for the third quarter of the year, due to increased costs and the construction of low-priced ships amid decreased new orders, industry sources said Sunday.

According to the data compiled by Yonhap Infomax, the financial news and information arm of Yonhap News Agency, Hyundai Heavy is expected to log an operating income of 106 billion won ($93.6 million) during the July-September period, compared with the previous year’s operating earnings of 322 billion won.

The shipyard’s sales are also expected to plunge to 4.18 trillion won from 8.84 trillion won over the cited period, the findings showed.

“A decline in the order backlog is leading to a drop in sales, while increased fixed costs and the construction of low-priced ships negatively affect its bottom line,” said Chung Dong-ik, an analyst at KB Securities. “This trend will continue into the fourth quarter unless it secures massive new orders.”

Samsung Heavy Industries, another big shipbuilder here, is forecast to rack up an operating income of 39 billion won for the third quarter, compared with an operating income of 84 billion won tallied a year earlier.

Its sales are expected to drop to 1.82 trillion won from 2.78 trillion won over the cited period, the data showed.

Troubled Daewoo Shipbuilding & Marine Engineering is also projected to chalk up a profit under the current quarter. In the January-March period, the shipyard reported an operating income of 292 billion won. In the second quarter, its operating income reached 665 billion won.

Korean shipbuilders have been under severe financial strain since the 2008 global economic crisis, which sent new orders tumbling amid a glut of vessels and tougher competition from Chinese rivals.

The country’s top three shipyards suffered a combined operating loss of 8.5 trillion won in 2015. The loss was due largely to increased costs stemming from a delay in the construction of offshore facilities and an industrywide slump, with Daewoo Shipbuilding alone posting a 5.5-trillion-won loss.

Last year, Hyundai Heavy managed to post profits, but the two others suffered losses.

The top three players conducted massive self-rescue plans to tide over their worst-ever slump. Last year, they cut at least 20,000 jobs combined.

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