Sector has yet to bottom; shipbuilding is
still a buyer’s market
 It’s time to stock pick; look beyond low
valuations to receivables and cash
balances
 Koreans benefit from strong exposure to
offshore and LNG business; prefer SHI,
upgrade to OW(V) from N
Sentiment vs fundamentals. The sector underperformed the
KOSPI by 29-34% in 2H11 due to weak order momentum
and global macro concerns. While investor sentiment
suggests the sector has bottomed, we don’t think the industry
fundamentals support this view as most indicators are not
improving and the global macro outlook remains gloomy.
This means stock selection has become more important and
we suggest investors focus on news flow, payment delays
and cash levels rather than just low valuations.
Offshore the key. We believe Korean yards are better
positioned than their Asian peers as they have more
exposure to the robust offshore and LNG business. But these
factors alone will not be enough to turn the tide. We see no
reason to turn bullish on the sector as a whole until
fundamentals improve through higher vessel prices, stronger
order volumes and a better financing environment. We urge
investors to be more selective in 1H12 as shipbuilding is still
a buyer’s market and offshore production orders should be the
difference between winners and losers.
Prefer Samsung Heavy (SHI), upgrade to OW(V) from N.
We believe SHI is strong in offshore and LNG, is the only
shipbuilder likely to achieve more than its new order target
and has lower risk from long-term account receivables. We
are Overweight (V) on Mipo and Neutral (V) on Hyundai
Heavy (HHI), Daewoo Shipbuilding (DSME) and
Rongsheng. We now apply IFRS to our models and change
our target prices accordingly – SHI to KRW38,000 from
KRW33,000, HHI to KRW320,000 from KRW350,000,
DSME to KRW27,000 from KRW30,000, Mipo to
KRW135,000 from KRW140,000, and Rongsheng to
HKD2.5 from HKD3.5. Our target prices for HHI and SHI
are 25% and 10% below market consensus, respectively.

Investment summary 3
Sentiment vs fundamentals 3
Stock picks 9
Valuation and risks 10
Valuation methodology 12
IFRS conversion 12
Stocks 12
Sector risks 14
Industry overview 15
No further recovery from here 15
Bulkers 16
Tankers 18
Containers 19
LNG carriers 21
Offshore 24
Company section 35
Hyundai Heavy (009540) 36
Samsung Heavy (010140) 41
DSME (042660) 45
Hyundai Mipo Dockyard (010620) 49
China Rongsheng Heavy (1101) 54
Disclosure appendix 59
Disclaimer 63