[Click eStock] "Samsung Heavy Industries, Earnings Shock and Capital Increase... Rising Uncertainty"

KB Securities "Samsung Heavy Industries Target Price Lowered to 5,000 Won"
New Orders in the Merchant Ship Sector Show Better-than-Expected Performance

[Asia Economy Reporter Gong Byung-sun] Samsung Heavy Industries is struggling as its first-quarter performance fell short of expectations and the effects of the capital increase are expected to be reflected in the second half of the year. Accordingly, KB Securities has lowered the target price for Samsung Heavy Industries from 6,500 KRW to 5,000 KRW, maintaining a 'Hold' rating.

According to KB Securities on the 24th, Samsung Heavy Industries reported an earnings shock with weaker-than-expected results in the first quarter. The company recorded an operating loss of 506.8 billion KRW in Q1, and even after excluding various one-time costs of 440 billion KRW, it still posted a deficit of 66.8 billion KRW. KB Securities analyst Jeong Dong-ik stated, “The ratio of construction loss provisions to new orders in Q1 was 2.1%, indicating continued loss-making orders,” adding, “The timing of a 2 trillion KRW-scale Nigerian offshore plant order is expected to be delayed until the end of this year, which will also push back related revenue.”

The capital increase plan also acted as a negative factor. Samsung Heavy Industries recently announced plans to conduct a capital increase worth about 1 trillion KRW following a 5-for-1 reverse stock split. The reverse split is a preemptive measure to address expected capital erosion by the end of this year, converting capital stock into capital surplus without affecting the number of shares or total capital. Analyst Jeong explained, “Although the timing and price of the capital increase have not been finalized, we assumed it will be issued at a 20% discount to the current price by the end of October and reflected this in our estimates.”

However, despite the poor performance, new orders in the merchant ship sector this year have been better than planned. Samsung Heavy Industries secured a total of 5.1 billion USD (approximately 5.75 trillion KRW), including 34 container ships, exceeding the annual order target of 4.6 billion USD. Analyst Jeong said, “Samsung Heavy Industries’ order intake is on a good trend, so we raised the new order guidance to 7.1 billion USD,” but added, “The offshore plant order target was lowered from 3.2 billion USD to 2 billion USD, and delays in order timing and rising raw material prices will weigh on performance.”

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