Joseon Stocks, Will the Second Quarter Be Hit by a Wave of COVID-19?

Minimal Impact on Existing Order Construction in Q1... Weak New Shipbuilding Orders Are the Issue

Sea trial of a 50K-class PC ship built by Hyundai Mipo Dockyard (Photo by Asia Economy DB)

[Asia Economy Reporter Geum Bo-ryeong] Although the impact of the novel coronavirus disease (COVID-19) on shipbuilding stocks' first-quarter earnings was relatively limited, an analysis suggests that a 'red light' will come on from the second quarter onward. This is due to the expected sluggishness in global new ship orders.

According to Korea Investment & Securities on the 23rd, the first-quarter earnings of shipbuilding stocks this year are expected to be less sensitive to the impact of COVID-19 due to the strong dollar and the construction of already ordered vessels. The estimated operating profits for the first quarter by company are KRW 72.3 billion for Korea Shipbuilding & Offshore Engineering, KRW 25.9 billion for Hyundai Mipo Dockyard, etc. The year-on-year growth rates are 105.7% and 0%, respectively. Samsung Heavy Industries continues to post an operating loss of KRW 41.1 billion, but the deficit is expected to narrow.

In particular, Korea Shipbuilding & Offshore Engineering is proceeding normally with the construction of previously ordered vessels, so the impact of COVID-19 on first-quarter earnings is not significant. The number of vessels scheduled for delivery in the first quarter is 35, an 84.2% increase compared to the previous quarter. Additionally, seven of these are gas carriers (LNG carriers, LPG carriers), which have high profit margins. Hyundai Mipo Dockyard also plans to deliver 17 vessels in the first quarter, an 89% increase from the previous quarter.

The biggest issue is new ship orders. The simultaneous effects of COVID-19 and the decline in international oil prices have put new ship orders at risk of stagnation. The decrease in cargo volume due to COVID-19, economic slowdown, and inability to hold face-to-face meetings are increasing the possibility of delays in the ordering of scheduled projects. The drop in international oil prices could lead to cancellations of large projects by oil majors, further amplifying concerns about a reduction in workload.

Stock prices have already reflected this and are on a downward trend. Korea Shipbuilding & Offshore Engineering's stock price, which was KRW 112,000 on the 21st of last month, fell by 31.25% to KRW 77,000 on the 20th of this month. During the same period, Hyundai Mipo Dockyard dropped 41.40% from KRW 39,250 to KRW 23,000, and Samsung Heavy Industries fell 45.63% from KRW 6,400 to KRW 3,480.

Experts pointed out that a conservative view on shipbuilding stocks should be maintained for the time being. Jeong Ha-neul, a researcher at Korea Investment & Securities, said, "Considering that stock prices are sharply declining due to sluggish new orders rather than first-quarter earnings, a conservative stance is necessary until COVID-19 in Europe subsides and industrial activities return to normal." He added, "At the same time, since a rebound in international oil prices can be seen as a factor limiting the extent of the stock price decline, monitoring the external environment is important for the time being."

This content was produced with the assistance of AI translation services.