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Korean shipbuilding industries 4Q14 preview: Better earnings visibility will start from commercial ships

研究机构:摩根大通(亚太) 研究员:Sokje Lee,Minsung Lee 发布时间:2015-01-22

After significant losses and share price corrections during 2014, we expectthe 4Q14 figures to show: 1) rising commercial ships vs sinking offshore;and 2) stabilizing earnings led by commercial ships. Generally, we don’texpect large negative surprises, amid a weak KRW and low steel prices.

Positives not yet considered: weak KRW, and low steel and stablenewbuilding ship prices. After disappointing earnings and significantstock price corrections in 2014, we see lowered expectations on thesector without comments on some stabilizing drivers, such as a weakKRW and falling steel prices. Commercial-ship-focused yards will likelybenefit more, in our view. In the long term, strong steel prices and theKRW will likely be positive catalysts, but we expect short-term earningsto play a bigger role at this stage.

4Q14 preview – not that bad. We expect the 4Q14 results of shipyardsto be largely in line with consensus or show QoQ improvements aftersignificant downward revisions. A rising portion of commercial shiprevenue will likely be a bigger driver. Offshore structures are a wellknownheadache, with volatile earnings, low utilization of yards, largeworking capital and a lack of designers. But the peak was in 2012 and itsrevenue contribution will fall throughout 2015, in our view.

Returning theme, commercial ships. Commercial ships will be the keydriver to show earnings visibility; Mipo, with a 100% commercial shipfocus and an earlier recovery of the cycle, will be a leading earningsindicator among peers, in our view. The company reported a significantloss in 3Q14 but mainly from recovery costs (see our previousshipbuilding report dated 13 Nov, 2014) and its 4Q14E OP, if it can getcloser to BEP (JPME -1.0% vs -3.9% consensus), will be a positive driver,in our view.

Debt, short-term burden. Shipyards have high levels of debt, asoffshore structures are being built on heavy-tail payment terms (60-70%contract price paid with delivery). We see compensating drivers fromcommercial ships. Heavy-tail based contracts signed in 2013 are nowdelivered and new orders are signed at standard payments terms (20% x5 times).

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