| HHI's prospects bright despite Q1 loss |
| Hyundai Heavy Industries (HHI) could still turn a profit for 2015 even as restructuring costs resulted in a loss of KRW138.8 billion (USD129 million) in the first quarter. The result was worse than the KRW58.4 billion loss for the first quarter in 2014. Excluding the KRW161 billion in restructuring costs, the world's biggest shipbuilder also posted a worse operating loss of KRW192.4 billion for first-quarter 2015, compared with an operating loss of KRW188.9 billion for first-quarter 2014. Still-weak margins for five units of semi-rigs continued to drag shipbuilding margins down and revenue from change-of-orders for the offshore division were deferred to the second quarter of 2015. Nonetheless, HHI's oil refining unit Hyundai Oilbank, electro-electric systems, construction equipment, and industrial plant divisional margins all recovered to positive territories. During a briefing for analysts, CIMB Securities KJ Hwang noted that HHI reaffirmed that there is a strong potential of USD400 million worth of offshore change-of-orders in the second quarter alone, the refining margin trend at Hyundai Oilbank remains firm, and the incremental margin recovery at the shipbuilding division is likely to continue. Although five units of semi-rigs look set to remain a drag until the third quarter, CIMB Securities does not see material downside risks to its estimates of a KRW610 billion operating profit and a KRW529 billion net profit for HHI in 2015, as resilient earnings at HHI’s divisions would be sufficient to offset the near-term impediments from semi-rigs and industrial plants. Hwang noted, “The management remained upbeat on order prospects, guiding for USD8.4 billion of commercial ship orders this year with no plans to cut the USD5 billion worth of offshore order target.” HHI plans to bid for two more projects in Africa, in addition to the three pipelines already pending, hinting at the project owners’ recent moves to recommence the delayed projects. HHI was largely positive on the order flows across oil and product tankers, ultra-large container ships, and liquefied gas carriers. Hwang said, “After the recent new VLCC orders contracted with Bahri, HHI said it is seeing more VLCC enquiries from the Middle East.” He recommended HHI’s stock, which at its current price of KRW146,500, is now up 30% year on year, supported by Hyundai Oilbank’s high-profit margins and optimism of a freight recovery for oil tankers. Hwang believes the stock price could surge to KRW200,000 in the next six months. |