Daewoo Shipbuilding & Marine Engineering is now the star performer among South Korea’s Big Three shipbuilders and concerns over its earnings are undue, said an analyst.
Samsung Securities analyst Han Young-soo based his report on a recent visit to the Okpo-based DSME to check on its recent performance.
From 16-22 April, DSME’s stock fell from KRW20,350 (USD18.80) to KRW19,250 on concerns over a CEO replacement and drillship delivery delays.
Korea Development Bank, a DSME shareholder, has recommended STX Offshore & Shipbuilding CEO Jung Sung-Leep as DSME’s new CEO. For Jung, it would be a homecoming, having served as DSME’s CEO from 2001-06.
Han remarked, “Concerns over construction delays of offshore production facilities were groundless as DSME is well on track to finish such facilities as scheduled. Meanwhile, drilling rig sales from problematic projects have been declining. We believe profitability at the company’s offshore business topped that of the commercial business last year, and in the long term, overall profitability should improve – albeit gradually – as the portion of revenue from LNG carrier orders rises.”
The construction of semisubmersibles for Songa Offshore remains a concern as the owner – who ordered four semisubmersible rigs – has requested multiple design and specification changes. That said, a delay should impact the company’s earnings minimally, as all four rigs are near completion and scheduled for delivery this year. Overall, DSME’s offshore profitability has remained steady, with offshore and specialized vessel gross margin hitting 7.4% in 2014, higher than the shipbuilding margin of 5%.
Although media reports claim Atwood Oceanics has asked DSME to delay delivery of two drillships, the related costs would be paid by the customer, albeit reducing the shipbuilder’s earnings.
Han noted, “DSME is scheduled to deliver 10 drilling rigs this year, but we believe three of which (including one of Atwood’s) have yet to be chartered. Related risks appear to be industry wide and not company specific, considering low oil prices.”
DSME’s stock closed at KRW19,550 on 23 April.