Hyundai Mipo Dockyard: More Anticipated Next Year Than This Year

Can domestic shipbuilders regain their past glory? Since the 2008 global financial crisis, the shipbuilding industry has faced a sharp downturn. Taking advantage of the global economic slowdown, China, leveraging price competitiveness, seized the world's top ship order country status. Internally, the industry endured difficult times due to accounting fraud and harsh restructuring. After a prolonged slump, the shipbuilding sector has recently begun to show signs of emerging from the doldrums. As global cargo volume, which had stalled due to the COVID-19 pandemic, recovers, freight rates are rapidly climbing. Additionally, expectations are rising that demand for replacing aging vessels will increase due to the International Maritime Organization (IMO)'s regulations on air pollutant emissions. This is interpreted as an increasing incentive for shipowners to place new orders. However, alongside these positive factors, uncertainties in the economy and declining shipbuilding prices remain persistent challenges. Asia Economy takes a closer look at the current status of domestic shipbuilders Daewoo Shipbuilding & Marine Engineering and Hyundai Mipo Dockyard, which stand at a crossroads of prosperity and decline, to gauge their potential for future management improvement.

[Asia Economy Reporter Yoo Hyun-seok] The outlook for Hyundai Mipo Dockyard next year is bright. Although it struggled with sluggish orders due to COVID-19 and other factors until the third quarter, orders resumed from the fourth quarter, raising expectations for next year's performance. Furthermore, as eco-friendly transport vessel orders increase globally, Hyundai Mipo Dockyard, which has accumulated related performance, is analyzed to be in a favorable position to secure order volumes.

◆Performance Improvement Starts with Vietnam Subsidiary and Cost Reduction= Hyundai Mipo Dockyard recorded consolidated sales of 631.8 billion KRW and operating profit of 28.8 billion KRW in the third quarter this year. Compared to the same period last year, sales decreased by 13.6%, but operating profit increased by 21.5%. The sales decline was influenced by reduced construction volume due to fewer working days during the summer vacation and a drop in exchange rates. However, operating profit was positively affected by falling steel prices, cost improvements, and expense reductions.

Additionally, the improved performance of Hyundai Vietnam Shipbuilding, which is consolidated, also positively impacted operating profit. Hyundai Vietnam Shipbuilding posted an operating profit of 14.7 billion KRW in the third quarter, achieving a profit margin of 13.1%, up 11.0 percentage points from the previous quarter. This improvement is attributed to the concentration of delivery of P/C (chemical product carriers) that could not be delivered in the second quarter due to COVID-19, leading to a significant rise in profit margin.

Due to sluggish orders, this year's performance outlook is not very favorable. Hyundai Mipo Dockyard initially set its annual order target at 3.65 billion USD. However, by the third quarter, it had only secured 1.76 billion USD in orders. Consequently, the order target was lowered from 3.65 billion USD to 2.56 billion USD.

The fourth quarter performance forecast has also been lowered. According to FnGuide, securities firms' forecasts for Hyundai Mipo Dockyard's fourth-quarter sales and operating profit are 694 billion KRW and 22.4 billion KRW, respectively, down from the forecasts three months ago of 731.6 billion KRW in sales and 23.9 billion KRW in operating profit.

◆Orders Increasing Again... High Expectations for Next Year= Although this year’s performance is somewhat sluggish, expectations are growing that performance will improve from next year with a recovery in orders. According to FnGuide, securities firms forecast Hyundai Mipo Dockyard's sales and operating profit next year to be 2.9617 trillion KRW and 985 million KRW, respectively, representing increases of 4.31% and 3.98% compared to the previous year.

The recent upward trend in marine freight rates is expected to positively impact order performance. The Shanghai Containerized Freight Index (SCFI) reached 2129.26 on the 4th, the highest point since the index was created in October 2009. The increase in cargo volume and freight rates has raised expectations that ship orders will increase.

Additionally, orders resuming from the fourth quarter are also a positive factor. Hyundai Mipo Dockyard secured two additional liquefied petroleum gas (LPG) carriers twice, on the 24th of last month and the 2nd of this month, totaling four vessels. The total order amount is approximately 200 billion KRW. This is expected to exceed the revised target for this year. Choi Kwang-sik, a researcher at Hi Investment & Securities, explained, "Adding the recent four LPG carriers and eight methanol carriers to the 1.94 billion USD ordered until October, Hyundai Mipo Dockyard will exceed the revised order target of 2.564 billion USD this year, reaching over 2.6 billion USD."

Orders next year are likely to expand further due to the base effect from the COVID-19 impact. According to the 'Shipping and Shipbuilding Industry Q3 2020 Trends and 2021 Outlook' report released by the Korea Eximbank Overseas Economic Research Institute, global orders in 2021 are expected to increase by about 111% compared to this year, reaching approximately 30 million CGT (Compensated Gross Tonnage). During the same period, domestic shipbuilding orders are expected to increase by about 127%, reaching approximately 10 million CGT.

Han Young-soo, a researcher at Samsung Securities, said, "The reason for expecting shipowners to resume investments in 2021 is that the ship supply and demand, which determines the shipbuilding cycle, remains very favorable, and ship demand-related indicators are recovering faster than expected."

Moreover, the increase in eco-friendly ships is also cited as a positive factor. The IMO has implemented regulations this year to reduce emissions of sulfur oxides and greenhouse gases such as carbon dioxide by 40% compared to 2008 levels by 2030. As a result, liquefied natural gas (LNG) and LPG-powered vessels are expected to become mainstream. Hyundai Mipo Dockyard has previously secured orders for LNG and methanol-powered vessels.

Researcher Han Young-soo emphasized, "Hyundai Mipo Dockyard has also built vessels equipped with LNG fuel tanks made of high manganese steel in the past. Generally, experimental vessels are ordered mainly in the early development stages as small to medium-sized ships rather than ultra-large vessels, and Hyundai Mipo Dockyard, which specializes in small to medium-sized vessels, has a high probability of securing orders."

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