South Korean mid-tier shipbuilder Hyundai Mipo Dockyard’s (HMD’s) shares are expected to show weakness as it has a long way to go in meeting its 2015 order target.
In a report following a visit to the Ulsan-based yard, Samsung Securities analyst Han Young-soo noted that the Hyundai Heavy Industries subsidiary’s new orders year to date are worth USD452 million – just 15% of its USD3 billion annual target for the year.
HMD attributed the performance to lacklustre order-taking for product tankers, which have been one of its flagship products.
The shipbuilder explained this was due to unfavourable supply-demand dynamics worldwide and not poor industry fundamentals.
Han noted “due to massive product tanker orders in 2013, shipowners remain cautious, expecting increases in deliveries and fleet capacity. Product tanker supply and demand dynamics have improved over the past year and this is positive. Product tanker order backlogs at shipbuilders have fallen as vessels continue to be delivered amid weak orders”.
HMD’s key rivals for product tanker orders are domestic players such as Sungdong Shipbuilding & Marine Engineering, SPP Shipbuilding, and STX Offshore & Shipbuilding.
Han pointed out that contrary to market concerns, competition from firms in Japan and China is not significant, and vessel prices – now around USD36 million/vessel – are not under severe downward pressure, according to HMD.
Han said HMD’s earnings should improve gradually due to weak steel prices.
Nonetheless, the shipbuilder’s weak order backlog would weigh on its stock price, said Han.
HMD’s stock is now trading at KRW72,700 (USD65.40), down from KRW160,000 a year ago.