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8/2/2019 Shipbuilding Time to Change
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Analyst
Sung, Ki-Jong (02)768-3263 [email protected]
Shipbuilding
Time to change
8/2/2019 Shipbuilding Time to Change
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Shipbuilding 2
Contents [Summary]
I. 2011 Review: Orders concentrated on a few ship types
II. 2012 Shipbuilding outlook
III. 2012 Offshore market outlook
IV. Conclusion: Finding the answer offshore
V. Investment strategy & valuation: Overweight large caps
VI. Promising shares
Hyundai Heavy Industries (009540 KS/Buy/TP: W470,000)
Samsung Heavy Industries (010140 KS/Buy/TP: W40,000)
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Shipbuilding 3
The offshore plant market should continue to enjoy a boom in 2012, as oil prices will
likely remain high, and investments in crude oil and natural gas should continue
increasing. Floating drilling facilities (drill ships and semi-submersible rigs) and FPSOsare operating at full capacity on the expansion of deep-sea resources development.
Investments in advanced concept ships for gas field development are also forecast to
continue rising. In 2012, LNG FPSO and LNG FSRU orders should soar, and new
concept offshore facilities (e.g., LNG FPGU) are expected to hit the market.
We maintain our Overweight rating on the shipbuilding sector, but advise investors tofocus on the top three shipbuilders when their P/B nears the previous low of 1.2x (currently
trading at 1.3x). The top three shipbuilders have broadened their business portfolios
beyond shipbuilding and offshore businesses, securing stable orders and cash f lows. We
are interested in Hyundai Heavy Industry (009540 KS/Buy/TP of W470,000) and Samsung
Heavy Industries (010140 KS/Buy/TP of W40,000).
Shipbuilding outlook
Offshore outlook
Investment summary
All major vessel types including containerships, tankers and bulk carriers are forecast to
experience weakening demand. However, LNG carrier demand should remain robust,
considering that: 1) natural gas has been universally recognized as the optimal alternative
energy source in terms of environmental friendliness and energy efficiency; 2) the
geographical difference between production (deep sea, Australia and Africa) andconsumption (mostly advanced economies) should boost LNG carrier demand steadily; and
3) the Japanese nuclear disaster has sparked a rush to develop natural gas, pushing the
day rate for LNG carriers to above US$130,000.
In 2012, we forecast that shipbuilders will suffer a plunge in orders, as 1) ship financing
should tighten on the back of the eurozone fiscal crisis and 2) the shipping industry will likely
stagnate amid a global economic downturn. As such, the global shipbuilding industry should
undergo another round of restructuring. In particular, the merchant ship market will likelyslow down.
[Summary]
0
100
200
300
00 01 02 03 04 05 06 07 08 09 10 11 12 13
Global ship financingNew orders
(US$bn)
11F 12F 13F
0
30
60
90
05 06 07 08 09 10 11 12
0
9
18
27
36
45Avg. market cap of the three largest shi pmakers (L)
Avg. ROE of the three largest shi pmakers (R)
(%)(market cap, W)
1.0x
2.0x
3.0x
4.0x
P/B 1.2x P/B 1.8x
0
10,000
20,000
30,000
40,000
03 04 05 06 07 08 09 10 11F 12F
Non-shipbuilding
(Wbn)
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Shipbuilding 4
0
2
4
6
8
10
00 01 02 03 04 05 06 07 08 09 10 110
1,500
3,000
4,500
6,000
7,500New orders (L)
Shipbuilding share price index (R)
(CGT mn) (p)
11F 12F
31.5
69.389.8
165.1
30.3
107.8
261.5
165.5
170.5
71.7
Global ship financing (US$bn)
[Summary] Shipbuilding market to slump amid eurozone financial crisis
- Large European banks finance roughly 80% of global shippurchases. In 2012, we expect the global shipbuilding industry toslip into a recession and undergo another round of restructuringdue to the eurozoneÊs financial turmoil and a global economicslowdown.
- Global shipbuilding orders are projected to contract 30% in 2011(to 27mn CGT), and an additional 30% in 2012.
- Meanwhile, investments in global offshore businesses are forecastto continue expanding. Natural gas-related investments should beparticularly wide-ranging, including LNG carriers, floating drillingfacilities (drill ships and semi-submersible rigs), floating productionfacilities (FPSO and LNG FPSO) and offshore support vessels.
- In 2011, Korean shipbuilders will likely receive offshore plantorders of US$30bn, including 32 drill ships (a record), one LNGFPSO and six LNG FSRUs (first order ever).
Source: Clarkson, KMI, KDB Daewoo Securities Research
Global new orders, shipbuilding share price index and financing
Second round of restructuring – Invest in large-cap shipbuilders
- Shipbuilders are forecast to undergo another round of restructuring amid the European debt crisis and a globaleconomic downturn. Thus, we recommend investors to mainly focus on the top three domestic shipbuilders, which canafford to diversify their businesses to incorporate offshore/onshore plants, offshore support vessels, etc. We believe
that large shipbuilders will continue to report stable orders and cash flow next year on the back of robustcompetitiveness.
- Large Korean shipbuilders are anticipated to deliver slightly sluggish earnings in 2012, but we recommend thatinvestors buy the stocks when their average P/B nears a 10-year low of 1.2x. Hyundai Mipo Dockyard is currentlytrading at a P/B of only 0.5x, and its expansion into the offshore support vessel segment should help offset weakmerchant ship sales.
- HHI (009540 KS/Buy/TP of W470,000), SHI (010140 KS/Buy/TP of W26,000)
Merchant ship orders todecline but offshoreinvestments to rise
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Shipbuilding 5
- November cumulative orders fell 26.6% YoY, to 16.94mn CGT, with containership and
LNG carrier orders accounting for 45% and 35% of total orders, respectively. Korea
and China were responsible for a respective 50% and 30% of total orders. Korean
shipbuilders have secured almost 70% of total orders for the two types of ships.
- For LNG carriers, speculative demand seems to have surged due to the Japanese
nuclear disaster, an increase in gas development and expectations for higher gas
demand. Annual orders are forecast at 60 units, with Korean shipbuilders estimated to
secure 51 units. Around half of the orders are expected to come from Greece.
- Major clients for mega-scale containerships are large shippers such as Maersk and
CMA CGM. Orders from second-tier shippers have been delayed to next year due to
the global financial turmoil.
Source: Clarkson, KMI, KDB Daewoo Securities Research
Robust orders for LNG carriers and mega-scale containerships
I. 2011 Review: Orders concentrated on a few ship types
Investments in deep-sea marine resources development are expanding amid
persistently high oil prices and increased investments in gas field development.
Drill ship orders hit an all-time high of 32 units. First-time orders include one
mega-scale LNG FPSO (roughly US$5bn) and three LNG FSRUs. Orders forfour FPSOs are also expected.
Orders for offshore support vessels are also expanding along with large
offshore plant orders.
„
‰
Orders by vessel type (as of November)
Floating offshore plant market is boomingNew order trend of global shipbuilders
New orders by ship type (quarterly)
Tanker
8%
Container
ships
43%
LNG carrier
20%
LPG carrier
1%
Bulkcarrier
28%
0
5
10
15
20
25
1Q03 2Q04 3Q05 4Q06 1Q08 2Q09 3Q10 4Q11
Tanker Bulk Carrier Containerships
LNG Carrier LPG Carrier
(CGTmn)
Expecting orders for
mega-sized
containerships, such as
LNG c arriers
0
100
200
300
00 01 02 03 04 05 06 07 08 09 10 11 12 13
Global ship financingNew orders
(US$bn)
11F12F 13F
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Shipbuilding 6
- The shipping industry should experience intensifying competition and slowing cash
flows amid a global downturn (except for LNG carriers). Freight charges and second-
hand ship prices of tankers, containerships and bulk carriers are unlikely to recover, as
freight traffic is growing slower than shipping tonnage. As such, shipbuilding orders
from shipping companies should plunge.
- Restructuring in the shipping industry will likely accelerate, including M&As and joint
management.
- Only 11 Korean shipbuilders won orders over the past two years (down 54.2% from
2008 till now). Those which failed to receive orders will likely undergo restructuring;
most of them will either be driven out of the market or sold off.
- Chinese shipbuilders are also suffering. ChinaÊs shipbuilding association reports that
46% of shipbuilders failed to win a single order in the past year, and that M&As are
growing.
- The global shipbuilding industry is forecast to undergo major restructuring in the next
two years amid a prolonged economic recession.
1. Tighter ship financing
2. Sluggish shipping industry
3. Restructuring
II. 2012 Shipbuilding outlook
- European banks (which finance roughly 80% of global ship purchases)should have less room for loan growth due to the eurozone debt crisis.However, ship financing is unlikely to fall markedly, thanks to Asian financialinstitutions and the diversification of ship financing support measures.
- Although European financial institutions will likely reduce ship financing,second-tier rivals should take this opportunity to gain market shares.
- Financing for merchant ships will likely contract, but large scale financing foroffshore businesses should expand.
0
300
600
900
1,200
02 03 04 05 06 07 08 09 10 11
Bulk carriers (BDI )
Containerships (HR)Tankers (WS)
(1/02=100)
0
10
20
30
2008 2011
No. of shipbuilding firms
(no.)
Down 54.2%
0
100
200
300
00 01 02 03 04 05 06 07 08 09 10 11 12 13
Global ship financingNew orders
(US$bn)
11F 12F 13F
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Shipbuilding 7
II. 2012 Shipbuilding outlook
- The short-term charter rate of LNG carriers hit a historic high on December 1st,
breaking above US$140,000. With scant LNG tanker deliveries throughout 2012, LNG
freight rates are likely to continue to rise in the year ahead.
- Natural gas emits less pollutants (CO2, SO, CO, NO) than other energy sources and is
thus recognized as the best alternative source of energy. There are also abundant
reserves both onshore and offshore.
- Countries have increased their natural gas inventories in the wake of the Japanese earthquake
and nuclear disaster, boosting LNG carrier demand. As natural gas has been gaining
importance not only as a power source but as an alternative energy that meets the needs of
businesses and households, countries are planning to increase natural gas imports.
- Growing investment in offshore gas fields by major firms is likely to increase LNG
carrier demand. As LNG FSRUs are also gaining popularity as a natural gas storage
facility (terminal), orders for LNG FSRUs should sharply grow in 2012.
LNG carriers are the only bright spot
Source: Clarkson, Gibson LNG Report, KDB Daewoo Securities Research
LNG carrier fleet, demolition and deliveries
Energy source(X)
Major pollutants & relative emission levels (LNG=1)
CO2 SO CO NO Dust
LNG 1.0 1.0 1.0 1.0 1.0
LPG 1.0 0.0 393.5 78.7 833.3
Oil (B-C fuel oil, kerosene,etc)
1.2 1,396.0 1,660.5 544.1 6,298.6
Coal (Bituminous,anthracite)
1.6 3,191.7 3,270.2 1,134.1 14,100.6
Others
Nuclear energy Nuclear waste (uranium, plu tonium, cesium)
Market outlook by vessel type:LNG carriers
Trend and outlook of the LNG carrier charter rate
Natural gas is the best alternative energy source
0
20
40
60
00 02 04 06 08 10 12F 14F
0
2,500
5,000
7,500
10,000LNG carrier fleet (L)LNG carrier demolition (L)
LNG carrier delivery (R)
(cubic meter mn) '000 cubic meter
0
40
80
120
160
11/08 11/09 11/10 11/11
Short-term (6 months~2 years)
Spot (less than 6 months)
(US$ '000/day)
11/11F
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Shipbuilding 8
- While pipelines have reached their limits, LNG carrier transport volume is likely to
continue to grow. Global natural gas transport volume increased 10.1% YoY in 2010.
In particular, LNG carrier transport volume grew 22.6% YoY. On the other hand,
pipeline transport volume expanded by merely 5.4%.
- Going forward, as long distance transport across water grows, the percentage of LNG
transport should increase.
Source: BP, Douglas Westwood, KDB Daewoo Securities Research
LNG carriers to gain popularity
II. 2012 Shipbuilding outlook
Global natural gas transport map
Natural gas demand trends and outlooks by mode of transport
- Global natural gas consumption is expected to remain on the rise. The growing
geographical distance between natural gas producers and end-consumers suggest the
preferred mode of transport will shift from pipelines to LNG.
- Robust development in offshore gas fields should support LNG carrier demand growth
for the time being.
- Increasing investment in offshore gas fields should also lead to diverse types of LNG
carriers, such as LNG FPSOs and LNG FSRUs.
Greater need for LNG carriers
Market outlook by vessel type:LNG carriers
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Shipbuilding 9
II. 2012 Shipbuilding outlook
- We expect global LNG carrier orders of 50 units in 2012. LNG demand is forecast
to reach at least 6.46mn cbm for the next two years. This amounts to at least 85
LNG carriers.
- The first chart below shows BP and Wood MackenzieÊs natural gas demand
forecasts and the LNG tonnage growth rate based on existing orders through
2015. Given the anticipated slow growth of the LNG tonnage, we expect to seeadditional order growth.
- In 2011, customers were deciding whether or not to act on 22 LNG vessel options
with domestic shipbuilders. We expect orders for these options to be placed within
2012.
2012F LNG carrier orders of at least 40 units
Source: Company data, Clarkson, BP, Wood Mackenzie, Worldyards, KDB Daewoo Securities Research
Trends and outlooks of LNG carrier orders and prices
LNG carrier demand and forecasts LNG demand and LNG carrier fleet growth Optional orders for LNG carriers by domestic shipbuilder
Market outlook by vessel type:LNG carriers
2.2
5.16.5
15.1 17.2
8.5 9.58.5 9.5
0
5
10
15
20
CAGR 2001-2010 CAGR 2005-2010 CAGR 2010-2015
LNG fleet growthLNG demand growth, BPLNG demand growth, Wood Mac
(%)
0
20
40
60
80
96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13
(units)
0
50
100
150
200
250
300LNG carrier orders (L)
160K cbm LNG carrier price (R)
(US$mn)
12F
Korean shipbuilders have already
secured 21 shipbuilding options in 2011
11F 13F
86 6
20
2
4
6
8
10
HHI SHI DSME STX O&S
(units)
6467107788519301,014
200
400
600
800
1,000
1,200
05 07 09 11F 13F 15F
6% growth 8% growth 10% growth
12% growth 14% growth 16% growth
(mn cbm)
483mn cbm in 2010
Base case
If LNG traffic increases at a CAGR of 6%
until 2015, then we ex pect orders for an
additional 85 units of LNG carriers (160K
cbm) over the next two years
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Shipbuilding 11
II. 2012 Shipbuilding outlook: [Containerships]Can second-tiers catch up with the industry leaders?
- 2011 was driven by mega containerships, as large shippers focused on enhancing
their competitiveness by saving costs. The key issue for 2012 will be whether
second-tier shippers can catch up with first-tier players.
- Given weak ship financing and the downturn in the shipping industry, we expect
muted mega containership orders from second-tier shippers. Thus, we expect
containership orders to drop over 50% YoY in 2012.
- However, in line with the delivery schedule of mega containerships, we expect
orders for small-sized containerships (feeder vessels) to grow.
- We estimate containership order volume at 1.5mn TEU in 2011 (mega
containerships should account for 85% of the total). Total fleet size is estimated at
14mn TEU.
- Around 1.6mn TEU containerships are set to be delivered in 2012, equivalent to11% of the existing fleet. Given the high number of deliveries compared to container
traffic growth, we expect to see oversupply in the market if the economy slows down.
Mega containership orders to plunge
Source: Alphaliner, CCFI, Clarkson, KDB Daewoo Securities Research
Trends and outlooks of containership orders and prices
Mega-sized containership holdings and new orders Containership idle fleet and CCFI Containership fleet, delivery and demolition forecasts
Market outlook by vessel type:Containerships
0
700
1,400
2,100
2,800
3,500
96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12
('000 TEU)
0
5,000
10,000
15,000
20,000
25,000
30,000Containership new orders (L)
Containership price (R)
(US$/TEU)
12F11F
0
5
10
15
20
00 02 04 06 08 10 12F 14F
0
1,000
2,000
3,000
Containership fleet (L)
Containership demolition (L)Containership delivery (R)
(TEU mn) ('000 TEU)
8777
5233
192022
1215
10109865
511
2040
1012
104
1235
164
010
513 29
7810
21010
0 30 60 90 120
MaerskMSC
CMA CGMCOSCO
Hapag LloydCSCLOOCL
EvergreenHanjin Shppg
NYKYang Ming
HMMK Lilne
ZimAPL
MOLUASCCSAV
MISC Bhd.Hamburg Sud
Unassigned Holdings New orders
0
500
1,000
1,500
2,000
10/08 4/09 12/09 6/10 12/11 5/11 11/11
600
800
1,000
1,200
1,400Idle fleet (L)
CCFI (R)
('000 TEU) (index)
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Shipbuilding 12
II. 2012 Shipbuilding outlook: [Tankers] A gathering storm
- In 2012, tanker orders are expected to fall 15% YoY (75mn CGT) and prices
are likely to stay weak. (However, if the Chinese governmentÊs ship fund drives
massive tanker orders, we could see order growth of over 30% YoY.)
- Tanker tonnage is forecast to grow 3.8% in 2012 and 6.7% in 2013, while oil
demand growth should slow to 1.5% YoY. Thus, tanker freight rates are
unlikely to recover.
- The global economic slowdown and the increasing use of alternative energies
should lead to weaker oil demand. Still, OPEC is likely to scale back its output,
helping maintain high oil prices.
Protracted downturn expected in tanker market
Source: IEA, BP, Clarkson, KDB Daewoo Securities Research
Trends and outlooks of tanker orders and prices
Tanker fleets and fleet growth forecasts Tanker fleets and WS trend Oil demand and growth trend and forecasts
0
20
40
60
80
100
96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12
(DWT mn)
0
100
200
300
400
500
600
700
800Tanker new orders (L)
Tanker price (R)
(US$/DWT)
12F11F
0
90
180
270
360
450
540
00 02 04 06 08 10 12F
-2
0
2
4
6
8
10Tanker fleet (L)
Tanker fleet growth (R)
(DWT mn) (%)
0
100
200
300
400
500
600
00 02 04 06 08 10 12
0
50
100
150
200
250
300
350Tanker fleet (L)
WS (R)
(DWT mn) (p)
F
50
60
70
80
90
100
1980 1988 1996 2004 2012F
-5.0
-2.5
0.0
2.5
5.0Oil demand (L)
YoY (R)
(%)(mn bbl/d)
Market outlook by vessel type: Tankers
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Shipbuilding 13
- In August 2008, the Chinese government decided to create a ship fund to support the shipping
industry. The country created the China Ship Fund in December 2009, and placed orders for
vessels worth RMB15bn to Chinese shipyards in 2010. Most of the orders were for bulk carriers.
- The China Ship Fund (ChinaÊs first ship fund) was designed to promote and stabilize the
shipbuilding industry.
- The figure below is based on the assumption that the ship fund will only place orders for
tankers (VLCC) going forward. Orders in 2012 are projected to be twice as high as during the
historic boom years of 2006~2007.
Source: Clarkson, Tradewinds, KDB Daewoo Securities Research
China Ship Fund to place large orders, but⁄
II. 2012 Shipbuilding outlook: [Tankers] A gathering storm
The Chinese governmentÊs large-scale orders (placed through the ship fund)
might revive a handful of shipbuilders in the short term, but ruin the global
tanker market in the mid- to long-term.
„
‰
New orders from China Ship Fund
VLCC orders and tanker fleet growth forecasts
Market outlook by vessel type: Tankers
0
3
6
9
2010 2011F~2012F
Order size
(US$bn)
Large orders for bulk
carriers
Expect massive orders
for tankers
0
30
60
90
00 01 02 03 04 05 06 07 08 09 10 11 12
-4
-2
0
2
4
6
8
10VLCC orders (L)
Tanker fleet growth (R)
(DWT mn) (%)
F F
China Ship Fund to place
massive orders for tankers
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Shipbuilding 14
II. 2012 Shipbuilding outlook: [Bulk carriers] Recovery not in sight
- In 2012, bulk carrier orders are expected to decrease 20% YoY (in terms of CGT), and
prices are projected to be weak. (The China Ship Fund is expected to focus on tankers
going forward.)
- Bulk carrier tonnage growth should reach 14.5% in 2012 and 16.8% in 2013, outpacing
global dry freight traffic growth. Thus, the bulk carrier market is unlikely to recover in the
short term.
- In 2012, investments are expected to increase across the industry on the easing ofregulations in China. Increasing raw materials inventory (iron ore, coal, etc.) might boost
bulk carrier freight rates and second-hand vessel prices in the short term. However, this will
not be enough to revitalize the bulk carrier market.
- Demand for handysize bulk vessels is expected to grow on an increase in the demolition of
obsolete vessels (currently over 35% are outdated).
Recovery not in sight
Source: Clarkson, MySteel.net, KDB Daewoo Securities Research
New orders for bulk carriers and new building price trend
Bulk carrier fleets and fleet growth forecasts Secondhand price-new building price spread and BDI Iron ore inventories in China
0
3,000
6,000
9,000
12,000
06 07 08 09 10 11
Iron ore inventories in China
(mn tonnes)
0
30
60
90
120
150
180
96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12
(DWT mn)
0
200
400
600
800
1,000Bulk new orders (L)
Bulk carrier price (R)
(US$/DWT)
12F11F
0
100
200
300
400
500
600
700
00 02 04 06 08 10 12F
0
5
10
15
20Bulk carrier fleet (L)
Bulk carrier fleet growth (R)
(DWT mn) (%)
0
3,000
6,000
9,000
12,000
00 02 04 06 08 10
-400
-250
-100
50
200
350
500
Average monthly BDI (L)
Secondhand price-new building price (R)(US$/Dwt)(p)
Ship prices
unlikely to
rise
Market outlook by vessel type: Bulk carriers
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Shipbuilding 15
Mid- to long-term outlook
- A decrease in new orders will likely depress vessel prices, and shipbuilders are
likely to suffer financial difficulties. During the past year, only 11 companies won
orders, which means that over half of all Korean shipbuilders have fallen into or are
in danger of bankruptcy.
- Prices of containerships, tankers, and bulk vessels are expected to be
weak in 2012 due to fewer orders. Only LNG carrier prices are projected to
rise on robust orders.
- As the global shipbuilding industry has relapsed into a long-term slump,
shipbuilders must make changes to remain competitive.
- The shipbuilding market is expected to rebound in 2H13 on the completion
of restructuring and the easing of oversupply in the shipping industry.
Shipbuilding industry requires restructuring
Source: Clarkson, KDB Daewoo Securities Research
Global shipbuilding industry expected to recover from 2H13
New building price and new order growth trend Shipbuilding orders in 2008 and 2011 New building price trend and forecasts by ship type
2nd-phase restructuring through 2013
-80
-30
20
70
120
170
90 94 98 02 06 10 14F
-60.0
-30.0
0.0
30.0
60.0
90.0
120.0New orders (R)
Order growth, YoY (L)
(%) (CGT mn)
15,000
20,000
25,000
30,000
04 05 06 07 08 09 10 11 12 13
0
500
1,000
1,500
2,000
2,500
Containership (L) Gas carrier (R)
Ta nke r (R) Bulk ca rrier (R)
(US$/Dwt)(US$/TEU)
12F 13F11F
-100
0
100
200300
400
97 99 01 03 05 07 09 11
-30
-20
-10
0
10
20
30
40
Order growth, YoY (L)Shi rice rowth, YoY (R
(%) (%)
0
10
20
30
2008 2011
No. of shipbuilding firms
(no.)
Down 54.2%
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Shipbuilding 16
III. 2012 Offshore market outlook
Source: KDB Daewoo Securities Research
Offshore plants by marine resource
Petrochemical plantetrochemical plant
FPSOemi-submersible rig Drill shipixed platform
AHTS
Jack-up
Shuttle tanker
PSV
Deep-sea offshore plant market is worth US$100bn
Expansion of offshore plant market due todeep-sea development
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Shipbuilding 17
III. 2012 Offshore market outlook
Source: Data from various sources, KDB Daewoo Securities Research
Gas fields and import/export terminals
Large-scale LNG projects Expansion of high-margin offshore facilities market, including LNG FPSO and FSRU
LNG – Under construction
LNG – In operation
Regas Position – Under constructionRegas Position – In operation
Sakhalin
Pluto, Gorgon(Woodside)
QG-4
Sakhalin
Pluto, Gorgon(Woodside)
QG-4
LNG – Under construction
LNG – In operation
Regas Position – Under construction
Regas Position – In operation
FSRU import/export terminals
„LNG FSRUs areterminals used toexport/import naturalgas‰
Expansion of offshore plant market due todeep-sea development
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Shipbuilding 18
III. 2012 Offshore market outlook
Expansion of offshore equipment market
Increasing oil and gas E&P projects Expansion of high-margin offshore facilities market (including LNG FPSO and FSRU)
Source: KDB Daewoo Securities Research
Jack-upRig
FixedPlatform
DrillShip
FPSO LNG FPSO LNG FSRU
LNG FPSO
Semi-submersible
rig
Drillship FPSOJack-up
rig
LNG FSRU
LNG FPGU
New offshore quipment arketDrilling rigs
Production &
storage
Power plant
- Development of new offshore equipment isaccelerating on the growing need to accessnatural resources from the deep sea (on the backof high oil prices and the depletion of fossil fuels).
- Growth in deep sea development is boostingfloating drilling facility orders. Drillship ordersreached a historic-high level of 28 units in 2011.
- Shell placed orders for LNG FPSOs (to startoperations in 2016) with Samsung HeavyIndustries. DSME signed a contract to designtwo LNG FPSOs.
- Companies have started to place orders for LNGFSRUs (import terminals for LNG). So far, sixunits (including two optional orders) have beenordered. The popularity of LNG FSRUs isexpected to increase.
- Major oil companies are expected to increaseinvestments in deep sea development. Despitethe eurozone debt crisis, natural gas developmentappears to be a priority due to high oil prices.Historic-high LNG-related investments areexpected in 2012.
Evolution of deep seadevelopment equipment
Expansion of offshore plant market due todeep-sea development
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Shipbuilding 19
III. 2012 Offshore market outlook
Source: KDB Daewoo Securities Research
Drilling facilities [Semi-submersible rigs]: Fully utilized
Drilling rig utilization rate by region Global: 79.4%
54.1%
80.5%
82.1%
87.9%
77.8%
„Floating rigs, whichaccount for 51% of allrigs, are fully utilized.‰Jack-up rigs
45%
Semi-sub
14%
Tender barge
3%Tender
1%
Drillship
37%
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Shipbuilding 20
III. 2012 Offshore market outlook
- Globally, roughly 810 drillships (rigs) are currently in operation (the utilization ratio is
estimated at 80%). Representative floating type drillships include drillships and semi-
submersible rigs (around 51%).
- Floating drillships are operating at full capacity despite large orders. Demand should
continue to rise steadily in 2012, as deep-sea resources development pushes up demand
for survey ships and rigs. The floating drilling facility market should continue to thrive in
2012.
- We forecast floating-type large drillship orders at roughly 30 units in 2011, and 25 units in
2012. The floating type rig market should continue to be dominated by three Korean makers.
- Semi-submersible rigs are useful in tough environments such as the North Sea. However,
drillship demand is also rising steadily thanks to improvements in design and control
equipment to better adjust to such environments.
- Drillships are priced around US$500~600mn per unit, while semi-submersible rigs are
priced around US$600~700mn (prices may differ depending on options and requests).
Floating drilling facility market to continue booming in 2012
Source: Company data, ODS-Petrodata, KDB Daewoo Securities Research
Floating drilling facility order trend for the Big 3 shipbuilders
Floating drilling facility freight charge and utilization rate Drillship
Drilling facilities [Drillships]: Fully utilized
Global drilling facility fleet and utilization rate trend
0
10
20
30
40
05 06 07 08 09 10 11F 12F
Drillship
Semi Rig
(Units)
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Shipbuilding 21
III. 2012 Offshore market outlook
- West Douglas expects FPSO installation to fall to a record low in 2012, given that FPSO
orders decreased for two years following the Lehman crisis. However, orders should
surge for several years to come.
- Infield System estimates that FPSOs accounted for roughly 46% of the global floating
production facilities in 2003~2010 (25% by FSO and 7% by semisubmersible rigs). Over
the next decade, we expect the portion to increase to 58%.
- Currently, around 95% of the floating drilling facilities are being utilized. Demand for
floating production facilities should rise further when deep-sea resources development
and drilling facility orders expand.
- FPSO demand should come mainly from South America (29%), West Africa (28%) and
Australia (12%).
Floating drilling facility market to flourish in 2012
Source: Company data, Infield System, West Douglas, KDB Daewoo Securities Research
Floating production facility installment trend by type
Floating production facilities (2003~2010) Floating production facilities (2011~2015F) FPSO
Production facilities [FPSOs]: Fully utilized
FPSO
46%
FSO
25%
TLP
5%
FSU
2%
SPAR
5%
Semi-sub
7%
FPS
7%
Others
3%
FPSO
58%
TLP8%
FSO
11%
Others
2%FPS
6%Semi-sub
10%
SPAR
4%
FSU
1%
0
5
10
15
20
25
06 07 08 09 10 11F 12F 13F 14F 15F
FPSO
FPSS
TLP
SPAR
(US$bn)
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Shipbuilding 22
0
20
40
60
80
100
00 01 02 03 04 05 06 07 08 09 10 11F 12F
WTI
Dubai
(US$/bbl)
BEP for gas field development project
EIA forecast
CERA forecasts
III. 2012 Offshore market outlook
- Major oil companies are the main customers of drilling
facilities and FPSOs. If oil prices remain at elevated levels,
this would ensure stable cash flows for oil companies,
suggesting that investments are likely to expand. (Global
forecasters expect sustained high oil prices.)
- Despite the European debt crisis, we do not expect major oil
companies to drastically cut back orders. Although large
European banks are likely to further tighten credit standards
and reduce financing to shipping companies given the
challenging industry environment, we expect financing for
offshore projects to remain intact thanks to the ongoing
offshore up-cycle.
- If oil prices remain high, major companies with high
creditworthiness will be considered attractive investments.
Floating drilling facility market to
continue booming in 2012
Source: Company data, Thomson Reuters, Infield System Ltd, Douglas Westwood, KDB Daewoo Securities Research
Oil price trend and breakeven point for oil field investment
Number of FPSOs in operation FPSO investment breakdown (2011~2015F) FPSO order outlook for the Big 3 shipbuilders
Production facilities [FPSOs]: Fully utilized
„Sustained high oil pricesare critical to the growthof the global offshorefacilities industry.„
.„
0
1
2
3
02 03 04 05 06 07 08 09 10 11F 12F
HHI SHI DSME
(units)
Others
42%
Gazprom
3%
Chevron
6%
Shell
6%BP
3%
Eni
4%
Total9%
Exxon
Mobil
3%
Wood
side
2%
Petro
-bras
22%
0
10
2030
40
50
P e t r o b r a s
C N O O C
E x x o n M o b i l
T o t a l S A
C h e v r o n
E n i S P A
B P P L C
R o y a l
P e t r o n a s
W o o d s i d e
S t a t O i l
C N R
P e t r o
T a l i s m a n
No. of FPSOs in operation
(units)
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Shipbuilding 23
0
1
2
3
4
02 04 06 08 10 12 14 16 18 20
Western Europe North America
Middle East Latin America
Eas tern Europe&F SU Aus tralas ia
Asia Africa
(units)
FF F FF
- Shell has already placed an order for a large-sized LNG FPSO and is set to make a
second order. Several other major firms are also set to place orders in 2012 after
completing the FEED phase.
- The first-ever LNG FPSO (order was placed in 2011) will be delivered in September
2016. If LNG FPSOs are to be deployed during 2017~2019, orders need to be placed
during 2012~2013. We expect LNG FPSO orders of around 10 units over the next
three years.
- The three largest Korean shipbuilders are projected to receive LNG FPSO orders of
2~3 units in 2012. In our view, orders might exceed WestwoodÊs projections.
Source: Company data, Flex LNG, Korea Eximbank, Douglas Westwood, KDB Daewoo Securities Research
LNG FPSOs are a boon for the three largest Korean shipbuilders
III. 2012 Offshore market outlook
Following SHI, DSME signed a design contract
with the Malaysian state oil company Petronas.
It is also in negotiations with Noble Energy on
building an LNG FPSO for IsraelÊs Tamaroffshore gas field project. Negotiations for
other LNG specialty ships are also underway.
„
‰
Current status of LNG-FPSO projects
Global outlook of LNG FPSO deployment
Production facilities [LNG FPSOs]: A new frontier
LNG-FPSO
„The first-ever LNGFPSO order wasawarded to SamsungHeavy Industries and willbe delivered inSeptember 2016.„
Concept270SMR2.0DFLNG
FEEDLummus C1-N23.0PNGStudiesAPCI DMR2.7Pechora LNGFEEDN2 or MR2.7Petrobras
ConceptTurbo Expander2.0Proteus LNGConcept160Costain Dual N21.5Sevan MarineConcept200Optimized Cascade5.3ConocoPhillipsConcept350MR0.4~1.5TGE MarineStudies270N2 or MR1.0~2.5SaipemConceptB&V PRICO1.02.0Exmar/ExcelerateConceptMustang N20.5~1.0TeekayStudiesN2 or MR0.5~2.2Hamworthy
Concept165~180Mustang NDX1.0~2.0BW OffshoreConceptN2 or MRBluewaterFEED160~200MR5.8Aker Kvaerner
Feasibility230MR4.5InpexGeneric FEED190Lummus C1-N21.6~2.0HoeghGeneric FEED230Linde MFCP2.5SBM Offshore
FEED436Shell DMR3.5ShellEPC220Costaim Dual N21.7Flex LNG
Statustorage
(x1000m3)iquefaction
apacity(mtpa)
roject
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Shipbuilding 24
- Even though the large-sized FPSO market is dominated by the three largest Korean
shipbuilders, only 37% of related equipment is domestically produced. While Korean
suppliers dominate the hull segment, most shipbuilders pay royalties or rely on imports
for topside and subsea parts and equipment.
- The three largest Korean shipbuilders are developing the technology to venture into
those markets. Winning contracts for the complete package of offshore plants and
domestically sourcing equipment would help them sharply improve their order value
and margins. This explains why they are actively investing in R&D for offshore plants.
Source: KDB Daewoo Securities Research
36.9% of FPSO equipment is domestically produced
IV. Conclusion: Finding the answer offshore[Topside & subsea parts] Creating added value from offshore & onshore plants
Topside & subsea parts
- The topside of a FPSO is basically a compact-sized onshore plant placed on top of a
ship. Thus, the more experience in building onshore plants, the better. Major Korean
companies are forming joint ventures with engineering companies to expand theirpresence in the onshore plant market.
- One LNG FPSO order was awarded to a consortium between a major Koreanshipbuilder (which lacks technology in the topside and subsea fields) and the Frenchengineering firm Technip. Developing advanced technologies is essential to createadded value and preserve the global status of Korean shipbuilders.
Eyes set on onshore plant market
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Shipbuilding 25
- In 2011, total order growth was driven by a surge in orders for mega containerships,
LNG carriers and offshore plant vessels (e.g. drillships).
- In 2012, we expect merchant ship orders to drop, but non-shipbuilding orders to
remain flat YoY. Orders for LNG carriers should remain robust, but containership
orders are expected to plunge and tanker and bulk carrier orders should remain
sluggish. We expect strong orders for offshore plants on the diversification of vessels.
- We expect stable cash flows, backed by solid orders.
Source: Company data, KDB Daewoo Securities Research
Orders and cash flows to remain stable in 2012
V. Investment strategy & valuation: Overweight large caps
Order trends and outlooks of the Big 3 shipbuilders
Cash flow trends and outlooks of the Big 3 shipbuilders
- In 2011, drillships became the leading vessel in the offshore plant segment, with
orders hitting a record high. We also saw new vessels, like LNG FPSOs and LNG
FSRUs, win their first orders (1 unit and 4 units, respectively, excluding options).
- In 2012, we expect the offshore plant segment to remain healthy on the diversification
of vessels. Drillship orders should decline YoY, but LNG FPSO orders are expected to
increase to 2~3 units and LNG FSRU orders (including existing options) should double
YoY.
- Another new vessel type, LNG FPGU, will be unveiled next year. Demand for LNG
specialty ships is growing in several advanced countries.
Solid offshore orders supported by diversified vessels
Stable cash flow to continue from robust non-shipbuilding orders
0
10,000
20,000
30,000
40,000
50,000
60,000
70,000
03 04 05 06 07 08 09 10 11F 12F
Non-shipbuilding
Shipbuilding
(Wbn)
-5,000
-4,000
-3,000
-2,000
-1,000
0
1,000
2,000
3,000
4,000
05 06 07 08 09 10 11F 12F 13F
HHI
SHIHMD
(Wbn)
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Shipbuilding 26
- The figure on the left illustrates the ROE and P/B bands for KoreaÊs three largest
shipbuilders and their share performances. In 2012, their earnings are expected to
remain flat with lower ROEs. Thus, earnings momentum is projected to be weak.
- Despite a YoY decline in orders and earnings, cash flows are anticipated to remain stable in
2012 thanks to the robust absolute level of orders. Thus, a P/B-based valuation is more
appropriate than a P/E-based or an EV/EBITDA-based valuation.
- We advise investors to trade at a P/B of 1.3~1.8x, and to accumulate shares when the P/Bapproaches 1.2x. With the dissipation of the eurozone crisis, the P/B is likely to near the upper-
end of the P/B band.
Source: Company data, KDB Daewoo Securities Research
Advise trading at P/B of 1.3~1.8x
V. Investment strategy & valuation
ROE, P/B and avg. share price of the Big 3 shipbuilders
P/B and avg. share price of the Big 3 shipbuilders
- The shipbuilding industry slowed down in the wake of the Lehman crisis. The
deterioration peaked at end-September 2009, when CMA CGM (the worldÊs second-
largest container shipper) cancelled orders on a large scale. At that time, shares of
most domestic shipbuilders tumbled sharply and their average P/B hit 1.2x .
- When the stock market tumbled at the height of the eurozone crisis at end-September,
domestic shipbuildersÊ shares plunged and their average P/B fell to 1.2x.
- During the past two global stock market crashes, shares of KoreaÊs three largest shipbuilders
rebounded after their average P/B fell to 1.2x.
P/B of 1.2x represents bottom
Accumulate shares as P/B approaches 1.2x
0
30
60
90
05 06 07 08 09 10 11 12
0
9
18
27
36
45Avg. market cap of the three largest shipmakers (L)
Avg. ROE of the three largest shipmakers (R)
(%)(market cap, W)
1.0x
2.0x
3.0x
4.0x
P/B 1.2x P/B 1.8x
0.0
2.0
4.0
6.0
8.0
05 06 07 08 09 10 11
0
400
800
1,200
1,600
Avg. P/B of the three largest shipmakers (L)
Avg. share price of the three largest shipmakers (R)
(1/31/2005=100)(x)
F
P/B 1.2x
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Shipbuilding 27
- Despite superior capabilities, Korean shipbuildersÊ shares are undervalued. In addition, their
shares are volatile as they are more sensitive to the eurozone crisis and economic fluctuations.
The shares of the three largest Korean shipbuilders should get a boost from new order growth
starting in early-2012.
- P/B-ROE comparison illustrates that Korean shipbuilders are undervalued relative to their
foreign peers.
- Large Korean shipbuilders have outperformed their foreign and mid- to small-sizedpeers.
Source: Thomson Reuters, KDB Daewoo Securities Research
Valuation comparison
V. Investment strategy & valuation
ROE-P/B of the Big 3 domestic shipbuilders vs. global peers
Share performances of major domestic shipbuilders and global peers
Peer group valuations
Korean shipbuilders are the most undervalued
P/E P/B ROE EV/EBITDA
11F 12F 11F 12F 11F 12F 11F 12F
HHI 8.0 6.8 1.3 1.1 16.9 17.3 5.7 5.3
SHI 6.5 6.4 1.4 1.2 24.2 19.7 5.5 5.8
DSME 6.8 7.1 1.0 0.9 15.4 12.8 4.4 5.1
HMD 5.7 6.3 0.5 0.5 9.0 7.8 2.4 2.4
HHIC NA 23.3 0.5 0.5 -5.6 2.1 19.9 13.2
Mitsui 6.5 7.5 0.5 0.5 8.5 5.3 41.2 42.3
Sumitomo 8.7 8.2 0.9 0.8 10.7 10.7 53.1 51.8
Mitsubishi 24.6 17.0 0.8 0.8 3.3 4.6 66.8 60.4
Guangzhou 15.8 14.6 2.6 2.2 16.9 16.9 11.2 12.8
CSSC 13.0 12.2 1.6 1.5 15.6 14.4 9.2 8.2
SembCorp Marine 11.7 12.4 3.0 2.7 26.6 23.3 5.8 5.7
Keppel 11.2 10.6 2.0 1.8 19.6 18.4 6.8 6.2
H M D
S H IH H I
Keppel
Sembcorp
CSSC
Guangzhou
Shipyard
Mitsubishi HI
Sumimoto HI
0
1
2
3
4
0 10 20 30
(P/B, x)
(ROE, %)
40
80
120
160
12/10 2/11 4/11 6/11 8/11 10/11 12/11
HHI
SHI
HMD
CSSC
Mitsui E&S
(-1Y=100)
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Shipbuilding 28
V. Investment strategy & valuation
Low-priced orders to be completed in 2012
Source: Company data, KDB Daewoo Securities Research
Earnings trend and forecasts of the Big 3 shipbuilders
Non-shipbuilding orders of the Big 3 shipbuilders Shipbuilding orders of the Big 3 shipbuilders Debt ratio trend of the Big 3 shipbuilders
Despite top-line growth, profitability to weaken
- Profitability is expected to weaken from 2H11 through
2012 due to an increase in construction of low-priced
vessels (ordered during 2009~1H10).
- However, profitability is expected to recover starting in
2H12 based on orders for mega-scale vessels and large
offshore plants received from 2H10. Shipbuilders are likely
to display stable profitability in 2013.
- Non-shipbuilding orders are expected to stabilize, but
shipbuilding orders are expected to slow down.
- Shipbuilders will maintain stable financial structures.
0
10,000
20,000
30,000
40,000
50,000
03 04 05 06 07 08 09 10 11F 12F
Shipbuilding
(Wbn)
0
10,000
20,000
30,000
40,000
03 04 05 06 07 08 09 10 11F 12F
Non-shipbuilding
(Wbn)
0
10,000
20,000
30,000
40,000
50,000
60,000
06 07 08 09 10 11F 12F 13F
(Wbn)
5
7
9
11
13
15Revenues (L)
OP margin (R)
(%)
0
300
600
900
1,200
05 06 07 08 09 10 11F 12F
HHISHI
HMD
(%)
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Shipbuilding 30
Source: Company data, KDB Daewoo Securities Research
Earnings forecasts of Hyundai Heavy Industries
Revenue breakdown by division Order breakdown by division Operating profit breakdown by division
Orders by division in 2011
0
7,000
14,000
21,000
28,000
35,000
06 07 08 09 10 11F 12F 13F
(Wbn)
6
9
12
15
18Revenues (L)
OP margin (R)
(%)
0
5
10
15
20
25
30
04 05 06 07 08 09 10 11F 12F
Shipbuilding Offshore
Plant Engine
Electric Const ruction equipmentOthers
(Wtr)
-1
0
1
2
3
4
5
04 05 06 07 08 09 10 11F 12F
Shipbuilding Offshore
Plant Engine
Electric Construction equipment
Others
(Wtr)
Shipbuilding
(incl.
drillships)
35%
Electric
12%
Offshore
17%
Construction
equipment
9%
Engine
16%
Plant
11%
0
5
10
15
20
25
30
04 05 06 07 08 09 10 11F 12F
Shipbuilding(incl. drillships) OffshorePlant Engine
Electric Construction equipment
(US$bn)
Investment points
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Shipbuilding 31
Note: Non-consolidated K-IFRS basis; NP refers to net profit attributable to controlling interests; Used closing price on December 15, 2011
Source: KDB Daewoo Securities Research
Comprehensive income statement (summarized) Balance sheet (summarized)
Hyundai Heavy Industries (009540 KS)
12/10 12/11F 12/12F 12/13F
22,405 25,291 27,958 31,469
17,735 21,067 23,597 26,182
4,670 4,224 4,362 5,287
1,231 1,290 1,426 1,605
3,439 2,934 2,936 3,682
3,439 2,934 2,936 3,6821,345 190 254 185
-82 -58 -134 -165
1,236 0 0 0
4,784 3,124 3,190 3,867
1,023 682 734 889
3,761 2,442 2,456 2,977
0 0 0 03,761 2,442 2,456 2,977
3,761 2,442 2,456 2,977
0 0 0 0
3,761 2,638 2,652 3,174
3,761 2,638 2,652 3,174
0 0 0 0
3,932 3,303 3,323 4,081258 1,437 2,139 2,805
17.6 13.1 11.9 13.0
15.4 11.6 10.5 11.7
16.8 9.7 8.8 9.5
(Wbn)
Operating Profit
Revenues
Cost of Sales
Gross Profit
SG&A Expenses
Operating Profit (Adj)
Total Comprehensive Profit
Controlling Interests
Non-Operating Profit
Net Financial Income
Net Gain from Inv in Associates
Pretax Profit
Income Tax
Profit from Continuing Operations
Profit from Discontinued OperationsNet Profit
Controlling Interests
Non-Controlling Interests
Non-Controlling Interests
EBITDAFCF (Free Cash Flow)
EBITDA Margin (%)
Operating Profit Margin (%)
Net Profit Margin (%)
12/10 12/11F 12/12F 12/13F
10,867 20,033 21,753 24,627
625 8,483 9,778 11,777
6,077 6,945 7,074 7,521
2,084 2,353 2,488 2,706
1,178 1,517 1,678 1,888
18,022 12,109 12,611 13,0817,451 813 813 813
8,000 8,320 8,451 8,621
306 373 380 386
28,888 32,142 34,363 37,709
13,377 15,340 15,621 16,204
2,132 8,245 8,332 9,378
3,882 4,688 4,488 3,9887,363 2,408 2,801 2,839
1,692 1,520 1,237 1,255
536 335 45 45
1,063 1,092 1,099 1,117
15,069 16,860 16,858 17,459
13,819 15,282 17,505 20,250
380 380 380 3802,954 1,045 1,045 1,045
10,053 14,392 16,420 18,968
0 0 0 0
13,819 15,282 17,505 20,250tockholders' Equity
Non-Controlling Interests
Capital StockCapital Surplus
Non-Cu rrent Liabilit ies
Long-Term Financial Liabilities
Other Non-Current Liabilities
Total Liabilit ies
Controlling Interests
Retained Earnings
AP & Other Payables
Short-Term Financial LiabilitiesOther Current Liabilities
Cash and Cash Equivalents
AR & Other Receivables
Total Assets
Current Liab ilities
Investments in Associates
Property, Plant and Equipment
Current Assets
Non-Current Assets
Intangible Assets
Inventories
(Wbn)
Other Current Assets
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Shipbuilding 32
Note: Non-consolidated K-IFRS basis; NP refers to net profit attributable to controlling interests; Used closing price on December 15, 2011
Source: KDB Daewoo Securities Research
Cash flows (summarized) Forecasts/valuations (summarized)
Hyundai Heavy Industries (009540 KS)
12/10 12/11F 12/12F 12/13F
1,527 2,465 2,605 3,338
3,761 2,442 2,456 2,977
604 1,331 866 1,103
440 311 319 330
52 59 68 69
-1,323 -353 150 50-2,838 -521 16 147
-1,403 -520 -129 -448
-156 71 -136 -218
564 196 87 1,046
0 -787 -734 -889
-3,887 5,303 -341 -365
-365 -748 -450 -500-70 -75 -75 -75
114 3 0 0
-3,566 6,122 184 210
2,352 85 -969 -974
2,564 638 -490 -500
0 0 0 0
-212 -429 -429 -4290 -124 -50 -45
-8 7,859 1,295 1,999
633 625 8,483 9,778
625 8,483 9,778 11,777Ending Balance
Net Profit
Cash Flow s from Op Activit ies
(Wbn)
Chg in Working Capital
Chg in AR & Other Receivables
Non-Cash Income and Expense
Depreciation
Amortization
Others
Chg in Equity
Dividends Paid
Chg in Inventories
Chg in AP & Other Payables
Income Tax Paid
Cash Flow s from Inv Activit ies
Chg in PP&EChg in Intangible Assets
Chg in Financial Assets
Others
Cash Flow s from Fin Activit ies
Chg in Financial Liabilities
Others
Increase (Decrease) in Cash
Beginning Balance
12/10 12/11F 12/12F 12/13F
9.0 8.2 8.1 6.7
7.9 7.1 7.0 5.9
2.5 1.3 1.2 1.0
9.3 4.8 4.2 2.8
49,489 32,128 32,317 39,177
55,965 36,986 37,408 44,426177,803 196,168 225,329 261,366
0 0 7,000 7,000
11.4 0.0 17.5 14.4
0.0 0.0 2.7 2.7
6.0 12.9 10.6 12.6
47.4 -16.0 0.6 22.8
54.8 -14.7 0.1 25.475.2 -35.1 0.6 21.2
4.1 4.0 4.1 4.5
11.2 11.4 11.6 12.1
13.4 5.1 3.5 3.7
14.0 8.0 7.4 8.3
31.8 16.8 15.0 15.8
37.1 25.8 24.2 30.1109.1 110.3 96.3 86.2
81.2 130.6 139.3 152.0
20.9 -27.5 -34.2 -41.9
42.8 26.6 58.4 81.2Interest Coverage Ratio (x)
Inventory Turnover (x)
Accounts Payable Turnover (x)
Net Debt to Equity Ratio (%)
Current Ratio (%)
ROIC (%)Liability to Equity Ratio (%)
ROA (%)
ROE (%)
EV/EBITDA (x)
EPS (W)
EPS Growth (%)
Accounts Receivable Turnover (x)
EBITDA Growth (%)
Operating Profit Growth (%)
Dividend Yield (%)
Revenue Growth (%)
DPS (W)
Payout ratio (%)
CFPS (W)BPS (W)
P/B (x)
P/CF (x)
P/E (x)
8/2/2019 Shipbuilding Time to Change
http://slidepdf.com/reader/full/shipbuilding-time-to-change 33/36
8/2/2019 Shipbuilding Time to Change
http://slidepdf.com/reader/full/shipbuilding-time-to-change 34/36
Shipbuilding 34
Source: Company data, KDB Daewoo Securities Research
Earnings forecasts of Samsung Heavy Industries
Revenue breakdown by division Contribution to revenue by division Operating profit breakdown by division
Order backlogs by division in 2011
0
3,000
6,000
9,000
12,000
15,000
06 07 08 09 10 11F 12F 13F
(Wbn)
0
2
4
6
8
10Revenues (L)
OP margin (R)
(%)
0
3
6
9
12
15
06 07 08 09 10 11F 12F
ConstructionOffshoreCommercial vessels
(Wtr)
0
200
400
600
8001,000
1,200
1,400
06 07 08 09 10 11F 12F
Construction
OffshoreCommercial vessels
(Wbn)
Offshore
55%
Commercial
vessels37%
Construction
8%
Commercial
vessels
44%
Offshore
50%
Construction
6%
Investment points
8/2/2019 Shipbuilding Time to Change
http://slidepdf.com/reader/full/shipbuilding-time-to-change 35/36
Shipbuilding 35
Note: Consolidated K-IFRS basis; NP refers to net profit attributable to controlling interests;
Used closing price on December 15, 2011
Source: KDB Daewoo Securities Research
Comprehensive income statement (summarized) Balance sheet (summarized)
Samsung Heavy Industries (010140 KS)
12/10 12/11F 12/12F 12/13F
13,090 13,676 14,294 15,522
11,623 11,857 12,579 13,365
1,466 1,819 1,715 2,158
418 702 733 796
1,049 1,117 982 1,361
1,049 1,205 982 1,361105 115 270 314
-17 -95 -144 -148
0 -30 11 11
1,153 1,232 1,252 1,675
265 323 275 369
888 910 977 1,307
0 0 0 0888 910 977 1,307
888 909 976 1,307
0 0 0 0
888 861 928 1,258
888 861 928 1,258
0 0 0 0
1,403 1,433 1,330 1,701518 2,317 877 1,213
10.7 10.5 9.3 11.0
8.0 8.8 6.9 8.8
6.8 6.7 6.8 8.4
(Wbn)
Operating Profit
Revenues
Cost of Sales
Gross Profit
SG&A Expenses
Operating Profit (Adj)
Total Comprehensive Profit
Controlling Interests
Non-Operating Profit
Net Financial Income
Net Gain from Inv in Associates
Pretax Profit
Income Tax
Profit from Continuing Operations
Profit from Discontinued OperationsNet Profit
Controlling Interests
Non-Controlling Interests
Non-Controlling Interests
EBITDAFCF (Free Cash Flow)
EBITDA Margin (%)
Operating Profit Margin (%)
Net Profit Margin (%)
12/10 12/11F 12/12F 12/13F
11,623 11,729 11,911 12,646
443 1,205 1,059 1,142
5,238 4,848 5,067 5,503
549 704 736 799
2,107 1,710 1,787 1,940
6,744 7,331 7,448 7,65938 4 14 25
5,054 5,471 5,442 5,435
152 105 96 88
18,366 19,060 19,358 20,306
12,397 12,655 12,244 12,518
1,671 4,240 4,431 4,812
4,575 4,039 3,239 2,7396,150 4,376 4,574 4,967
2,154 1,518 1,408 931
1,845 1,136 1,036 536
206 280 270 293
14,550 14,173 13,652 13,449
3,816 4,886 5,706 6,856
1,155 1,155 1,155 1,155499 423 423 423
2,558 3,808 4,677 5,875
0 1 1 1
3,816 4,887 5,707 6,857tockholders' Equity
Non-Controlling Interests
Capital StockCapital Surplus
Non-Cu rrent Liabilit ies
Long-Term Financial Liabilities
Other Non-Current Liabilities
Total Liabilit ies
Controlling Interests
Retained Earnings
AP & Other Payables
Short-Term Financial LiabilitiesOther Current Liabilities
Cash and Cash Equivalents
AR & Other Receivables
Total Assets
Current Liabilit ies
Investments in Associates
Property, Plant and Equipment
Current Assets
Non-Current Assets
Intangible Assets
Inventories
(Wbn)
Other Current Assets
8/2/2019 Shipbuilding Time to Change
http://slidepdf.com/reader/full/shipbuilding-time-to-change 36/36
Shipbuilding 36
Note: Consolidated K-IFRS basis; NP refers to net profit attributable to controlling interests;
Used closing price on December 15, 2011
Source: KDB Daewoo Securities Research
Cash flows (summarized) Forecasts/valuations (summarized)
Samsung Heavy Industries (010140 KS)
12/10 12/11F 12/12F 12/13F
1,035 2,564 1,127 1,469
888 910 977 1,307
456 573 353 395
333 292 329 323
22 23 19 18
-113 -65 140 140-309 1,591 73 136
-1,505 636 -219 -435
26 -97 -32 -63
440 55 192 381
0 -510 -275 -369
-731 -161 -204 -226
-393 -291 -300 -315-34 -10 -10 -10
-306 -37 0 0
2 176 106 100
-427 -1,638 -1,070 -1 ,159
-326 -1,432 -900 -1,000
3 1 0 0
-108 -108 -108 -1084 -99 -62 -51
-123 762 -147 84
566 443 1,205 1,059
443 1,205 1,059 1,142Ending Balance
Net Profit
Cash Flow s from Op Activit ies
(Wbn)
Chg in Working Capital
Chg in AR & Other Receivables
Non-Cash Income and Expense
Depreciation
Amortization
Others
Chg in Equity
Dividends Paid
Chg in Inventories
Chg in AP & Other Payables
Income Tax Paid
Cash Flow s from Inv Activit ies
Chg in PP&EChg in Intangible Assets
Chg in Financial Assets
Others
Cash Flow s from Fin Activit ies
Chg in Financial Liabilities
Others
Increase (Decrease) in Cash
Beginning Balance
12/10 12/11F 12/12F 12/13F
10.7 7.2 6.7 5.0
7.7 5.3 4.9 4.0
2.6 1.4 1.2 1.0
8.8 5.1 5.0 3.2
3,846 3,937 4,227 5,657
5,381 5,302 5,733 7,12915,888 20,722 24,310 29,321
0 0 0 0
12.2 0.0 11.1 8.3
0.0 0.0 0.0 0.0
-0.5 4.5 4.5 8.6
17.7 2.1 -7.2 28.0
21.5 14.9 -18.5 38.626.6 2.4 7.4 33.8
2.9 2.7 2.9 3.0
23.1 21.8 19.9 20.2
10.2 4.9 3.4 3.5
4.6 4.9 5.1 6.6
26.7 20.9 18.4 20.8
16.4 18.9 19.0 27.2381.3 290.0 239.2 196.1
93.8 92.7 97.3 101.0
70.5 14.5 -0.8 -16.5
5.9 15.6 15.8 26.5Interest Coverage Ratio (x)
Inventory Turnover (x)
Accounts Payable Turnover (x)
Net Debt to Equity Ratio (%)
Current Ratio (%)
ROIC (%)Liability to Equity Ratio (%)
ROA (%)
ROE (%)
EV/EBITDA (x)
EPS (W)
EPS Growth (%)
Accounts Receivable Turnover (x)
EBITDA Growth (%)
Operating Profit Growth (%)
Dividend Yield (%)
Revenue Growth (%)
DPS (W)
Payout ratio (%)
CFPS (W)BPS (W)
P/B (x)
P/CF (x)
P/E (x)