South Korean shipbuilder Samsung Heavy Industries (SHI) is the most attractive shipbuilder in the sector, although the market consensus expects SHI to be the biggest victim of low crude prices, according to a newly-released analyst research note.
Korea Investment & Securities analysts Kyungja Lee and Hyungjun Ahn said, “Over the short to mid term, the big three Korean players – Hyundai Heavy Industries, SHI, and Daewoo Shipbuilding & Marine Engineering – have new order targets of USD10-14 billion.”
They expressed negative views of the goals as they seem too difficult to achieve.
However, Lee and Ahn insisted that SHI is close to securing at least a part of the Browse FLNG deal and would reach its full-year target of USD5 billion this year, as the shipbuilder had already won USD2.5 billion year to date.
SHI, South Korea’s second biggest shipbuilder, has proven itself in the FLNG business, having clinched Shell’s Prelude FLNG and Petronas’s Rotan FLNG projects.
When it comes to the Browse deal, the analysts explained that Woodside, an Australian energy company, disclosed that it expects front-end engineering and design (FEED) for the Browse FLNG to begin in mid-2015, after being postponed in end-2014.
The analysts noted that SHI is waiting on the FEED and hull side contracts of three units amounting to USD4 billion, and the shipbuilder is likely to secure the top side contract of USD9 billion based on the final investment decision in 2016.
According to Lee and Ahn, it is expected that over the long term, Japan would continue to gain ground backed by a weak Japanese Yen.
They continued, “Foreign exchange rates and labor costs are critical in shipbuilding, and it is difficult for developed markets to sustain competitiveness.”
Given the situation, the analysts forecast, “Similar to SHI’s earlier drillship-led growth, expansion into the FLNG market, which is protected by high entry barriers, would help fuel additional growth.”
They also mentioned SHI’s solid financials compared with competitors. Lee and Ahn pointed out that SHI does not accept excessively cheap orders and makes necessary investments thanks to its strong financial position.
The analysts maintained a ‘hold’ rating on SHI stock and a target price of KRW25,000 (USD 22.34) which is currently trading at KRW16,700.