Should We Consider Investing in Shipbuilding Stocks Amid the Order Rally?

Bright Outlook for Korea Shipbuilding & Offshore Engineering and Others in Order News

[Asia Economy Reporter Minji Lee] As economic activities have improved since COVID-19, domestic shipbuilders have been delivering good news on orders from the beginning of the year, leading to a rise in their previously quiet stock prices. The securities industry expects that the increase in order volume and rising ship prices will continue to improve the profitability of shipbuilders.

According to the Korea Exchange on the 15th, the stock price of Korea Shipbuilding & Offshore Engineering has risen about 8% since the beginning of this year. Compared to the lowest price recorded on the 1st of last month (93,200 KRW), it surged about 26% in just over a month. Despite a net selling trend by foreigners and institutions, they bought stocks worth 63.2 billion KRW as shipbuilders continued to announce new orders, driving up the stock price. Hyundai Mipo Dockyard also rose about 22% since the beginning of the year.

The rising stock prices of shipbuilders reflect expectations for increased orders. Domestic shipbuilders (Daewoo Shipbuilding & Marine Engineering, Korea Shipbuilding & Offshore Engineering, Samsung Heavy Industries, Hyundai Mipo Dockyard, etc.) have already secured orders exceeding their first-quarter targets amid a recovery in ship orders. As of last month, shipowners' order volume surged about 151%.

Last week, Korea Shipbuilding & Offshore Engineering announced that its subsidiaries, Hyundai Heavy Industries and Hyundai Mipo Dockyard, secured orders for liquefied petroleum gas (LPG) carriers, PC vessels, and container ships. Daewoo Shipbuilding & Marine Engineering disclosed that it secured 10 very large crude carriers (VLCCs) worth 960 million USD. The four major shipbuilders' order target for this year is 30.1 billion USD, with Samsung Heavy Industries achieving 31% of its order target. Hyundai Mipo Dockyard (28.4%), Korea Shipbuilding & Offshore Engineering (25.1%), and Daewoo Shipbuilding & Marine Engineering (20%) are also steadily increasing their orders.

Further increases in ship price indices are also expected. According to Clarkson Research, a UK-based shipbuilding and shipping market analysis firm, the newbuilding price index, which indexes the price of newly built ships as of the 12th, recorded 129 points, up about 3.2% compared to the end of last year (125 points). Prices of raw materials such as nickel and copper are on the rise, and freight indices are also showing a sharp increase. The bulk carrier freight index has surged about 67% over the past three months, showing a larger increase than the newbuilding price index. Tae-hwan Lee, a researcher at Daishin Securities, explained, "Typically, ship price increases lag leading variables by 3 to 6 months," adding, "If shipbuilders' order backlogs are filled and orders continue, ship prices will rise rapidly."

The securities industry expects the momentum of orders to continue for the time being. Recent trends show that orders for container ships are strong, tanker orders continue due to rising oil prices, and LNG ship orders from Qatar are also expected to appear consecutively. Myungsoo Han, a researcher at Samsung Securities, said, "Domestic shipbuilders' market share of new orders was about 52% until last month," explaining, "Even though these were not LNG ships, where domestic shipbuilders have strengths, the preference for ships built by large shipbuilders is strengthening compared to China or small and medium shipyards."

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