[Click eStock] "Samsung Heavy Industries, Slow Earnings Improvement... Target Price Down 13%"

Daishin Securities Report

[Asia Economy Reporter Minji Lee] Daishin Securities maintained its investment rating on Samsung Heavy Industries as Market Perform on the 2nd and set a target price of 5,600 KRW, down 13.8% from the previous target. This decision was based on the reduced backlog risk due to the sale of drilling rigs, but a slow pace of earnings improvement.

On the previous day, Samsung Heavy Industries announced the signing of a sales contract for one out of five drilling rigs. It is one of two rigs, whose contract with Transocean was terminated in October 2019, sold for 245 million USD. The drillship is expected to be delivered between November next year and March 2023 after the charter and maintenance period by the shipowner. Researcher Dongheon Lee of Daishin Securities said, "As of the end of last year, the book value was 260 million USD, so the sale price is about 6% lower than the book value, but considering the recent exchange rate increase, no provision is expected to occur."

Among the remaining two rigs from Seadrill, one was chartered to Saipem in November and has already departed, and inquiries for the sale of the remaining three rigs are ongoing. The recent book value of the five drilling rigs is 1.18 billion USD, and a successful sale at book value level is expected to reduce backlog-related risks. Regarding the financial structure, the total capital is expected to increase from 2.9 trillion KRW to 3.9 trillion KRW through a paid-in capital increase. The debt ratio is expected to decrease from 322% to 198%, and cash flow is predicted to improve due to increased orders, advance payments, and deposits from drilling rig sales contracts.

Orders until October this year are expected to increase by 1,020% year-on-year to 11.2 billion USD. Looking at only merchant ship orders, the backlog is secured for more than two years at a level comparable to past peak sales. Researcher Donghyun Lee said, "Due to slow orders and low ship prices from last year to the third quarter of this year, earnings are expected to remain sluggish until next year. From 2023, expansion in scale, ship price increases, and increased workforce proficiency will be reflected, leading to a return to profitability." He added, "The current price-to-book ratio (PBR) is 1.3 times, which is at the average level of competitors. Although there are burdens from slow earnings improvement and drilling rig backlog, in the long term, this is the bottom."

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