Global differentiation of Korean shipbuilders
Shipbuilding orders continue to increase in steps in 2H08 Global
shipbuilding order receipts are expected to fall 25% YoY to 59mn CGT
(Compensated Gross Tonnage) in 2008 due to the global economic
slowdown and some speculative orders made in 2007. Growth momentum,
however, looks alive, given the 3-year average order increase of 11.4%, or
67mn CGT, during the 2006-2008 period. Global shipbuilding volumes in
2008 should be up 17.0% to 39mn CGT. The ratio of global orders to
shipbuilding volumes stands at 65% despite a fall in orders, which indicates
a bottleneck in supply. Taken together, order backlog should rise 11.7% YoY
to 199mn CGT as of end-2008, which is enough to make global shipbuilders
busy for 3.9 years on average.
Steel plate supply remains tight in 2H08 Korean shipbuilders are
estimated to spend more than 5.95mn tons of steel plate this year, while
the supply of plate will be tight in 2H08. Additional plate price increase is
expected in 2H08 on rising raw material prices. Korean shipbuilders,
however, should register the same level of profit in 2H08 as in 1H08 as they
now build more high-value added ships.
Shipbuilding prices to go up in seller’s market Global shipbuilders
continue to face capacity shortage on the overall booming in shipbuilding
including tankers, container vessels, and bulkers. Korea’s large shipbuilding
companies are enjoying a seller’s market due to a delay in shipbuilding in
China. So, they will be able to pass on plate price increases to ship prices,
which in turn will lead to a rise in vessel prices in 2H08.
Basket trading of HHI, SHI, DSME, STX Shipbuilding We maintain our
overweight position on the shipbuilding sector in 2H08 for the following
reasons;
1) From a long-term perspective to 2010, the sector should continue to
grow in 2H08 on increasing global shipbuilding order receipts.
2) While global shipbuilding orders will likely to drop this year compared to
last year, Korean shipbuilders, the world’s leading players, should
receive selective order receipts.
3) Korean shipbuilders should continue their strong growth with margin
expansion in 2H08.
Meanwhile, Korean shipbuilders are showing a repeated pattern of share
price correction in 4Qs, which is related to their business practices. We
recommend a technical approach to this issue.
2008 outlook for global economy and shipbuilding sector
The world economy, after a ten-year economic boom led by the U.S., gave way to
economic downturn in 2001. Amid the slowing economy, the global shipbuilding sector,
Korean companies with no exception, also entered the down cycle. However, starting in
2003 emerging nations, like China, registering a double-digit economic growth are
providing a momentum to boosting shipbuilding orders, benefiting Korean shipbuilders
especially.
According to the IMF, the U.S. economy is forecast to grow mere 1.9% this year and the
world economic growth should also slow to 4.8%.
However, with emerging nations maintaining their robust economic growth, the global
shipbuilding orders should post stable growth trends. We expect this trend will continue
through 2H08 as long as the growth momentum of emerging nations remains alive.
Meantime, with accumulated share price rises for Korean shipbuilders, their value is being
partially reflected in the stock market. Depending on the extent of the share price rise in
2H08, there should be heated debate on their fair values in 4Q08, irrespective of the
long-term shipbuilding sector outlook.
Shipbuilding June 9, 2008
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Contents
2008 outlook for global economy and shipbuilding sector
3
Global order receipts trend: On the uptrend in absolute term
4
Global shipbuilding growth trend: Growing orders for large vessels
5
Global order backlog on the rise
6
Tight supply of steel plate to continue into 2H08
8
Vessel prices: Continuously on the rise
9
Korean shipbuilders to lead global market
11
Korean shipbuilders continue differentiated order receipts
12
Korean shipbuilders in the global perspective
13
Appendix: Top 5 Korean Shipbuilder core investment index
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Company: Hyundai Heavy Industries, Samsung Heavy Industries,
DSME, STX Shipbuilding
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