Dongsung Hwaintec, Growing Order Backlog... Rising Expectations for Performance '↑'

The Korean shipbuilding industry has emerged from a dark tunnel of a decade-long recession and has started to run again. Despite COVID-19, orders from global shipowners have continued, causing ship orders to increase explosively. Domestic shipbuilders have secured 2 to 3 years' worth of work, mainly focusing on liquefied natural gas (LNG) vessels. In particular, with the strengthening of environmental regulations, they have shown strengths in orders for LNG carriers (LNG ships) and LNG-powered ships, which are classified as high value-added ship types. This has led to an increase in orders for companies producing LNG cryogenic insulation materials. Cryogenic insulation materials are materials made using carbon fiber and others to keep the internal temperature of LNG ships low, maintaining and storing LNG in liquid form for a long time. In Korea, 'Korea Carbon' and 'Dongsung FineTec' are considered representative companies. Asia Economy examined the current status of these companies that are rising along with the revival of the Korean shipbuilding industry and analyzed their future growth potential.

[Asia Economy Reporter Yoo Hyun-seok] Dongsung FineTec is raising expectations for its performance, with its order backlog doubling compared to last year thanks to the shipbuilding boom. In particular, preparations for eco-friendly fuels, which are expected to become the mainstream in the future, have been completed, making continuous growth possible.

Dongsung FineTec was established in 1985. It initially started business activities by mediating and selling chemical products imports. Currently, it operates in the polyurethane (PU) insulation business (cryogenic insulation materials, PU systems) and gas business (refrigerants, disaster prevention systems). The largest shareholder is Dongsung Chemical, holding 38.39% of the shares.

Dongsung FineTec's sales mainly come from cryogenic insulation materials. These are heat-blocking materials. Cryogenic insulation materials are used in the manufacture of cargo tanks for LNG carriers and fuel tanks for LNG-powered ships. As of the third quarter of last year, 94.5% of total sales were generated from the PU insulation segment.

Moreover, its performance has been steadily increasing. In 2018, it recorded sales of 188.1 billion KRW with an operating loss of 8.6 billion KRW, but in 2019, it achieved sales of 253.3 billion KRW and an operating profit of 26.9 billion KRW. Last year, sales were 388 billion KRW with an operating profit of 32 billion KRW. However, this year saw a slight slowdown. As of the third quarter, cumulative sales and operating profit were 259.7 billion KRW and 25.1 billion KRW, down 8.82% and 22.04% respectively compared to the same period last year. A company official explained, "The exchange rate had an impact," adding, "Also, projects conducted last year were better in terms of profit, so a base effect appeared."

However, the outlook is bright. The most important factor for Dongsung FineTec is orders. Its performance depends on the shipbuilding industry's market conditions. The order backlog was maintained at around 400 billion KRW, recording 351.9 billion KRW in 2018, 474.7 billion KRW in 2019, and 443.3 billion KRW last year.

But the order backlog increased significantly this year. Starting with a 55 billion KRW supply contract for cryogenic insulation materials for LNG carriers and ethane carriers with Samsung Heavy Industries in January, it achieved three contracts in March and two in September, accumulating 707.5 billion KRW in orders by the third quarter this year. The order backlog reached 959.1 billion KRW, more than doubling compared to last year.

The reason for the increase in order backlog is the recent rise in shipbuilding orders and the trend toward LNG-powered ships. Globally, greenhouse gas emission regulations to combat global warming are being strengthened. This applies to the shipping sector as well.

The International Maritime Organization (IMO) has tightened the sulfur oxide (SOx) content limit in ship fuels from the previous 3.5% to 0.5% for all ships worldwide since last year. As a result, recent ships are installing desulfurization devices or adopting LNG-powered ships.

Additionally, Dongsung FineTec's technological capabilities are a driving force behind its high order achievements. A company official said, "Now, the technologies are somewhat similar, but we developed technology earlier than competitors to reduce the natural boil-off rate (BOR) of LNG in operation," adding, "Through long-term marketing with that technology, we have built references in the market, which is showing effects."

He added, "Also, our product portfolio is diverse, and in the LNG sector, preparations made so far are bearing fruit," and "There is a high possibility that order volumes will accumulate further this year."

Securities firms also forecast a high possibility of performance improvement in the future. According to FnGuide, securities firms project Dongsung FineTec's sales and operating profit next year to be 380.5 billion KRW and 36.5 billion KRW, respectively. This represents increases of 6.53% and 18.10% compared to this year's forecast of 357.2 billion KRW in sales and 30.9 billion KRW in operating profit. A company official emphasized, "Since we have a large volume of orders, next year's performance is expected to be good," adding, "There are variables in operating profit, but we plan to continue efforts such as cost reduction."

The company official explained, "We believe the LNG-related market is maturing," and "Demand for LNG is expected to increase, and replacement volumes will also occur, so the outlook is not bad."

In particular, steady development of eco-friendly fuels, which are becoming mainstream, raises expectations for the future market. Dongsung FineTec signed a joint project agreement with the American Bureau of Shipping (ABS) in November last year and started developing hydrogen fuel tank technology. In February, it also obtained the basic approval in principle (AIP) for the design of hydrogen fuel tanks for ships.

He explained, "Many industries are showing demand for eco-friendly fuels," adding, "Hydrogen used in eco-friendly energy must be stored at about -253°C, requiring careful insulation, and Dongsung FineTec has received ABS certification through technology accumulated from LNG."

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