[Click eStock] Korea Shipbuilding & Offshore Engineering's New Path... Investment Rating Upgraded to 'Buy'

[Asia Economy Reporter Lee Seon-ae] Daishin Securities announced on the 19th that it has upgraded its investment opinion on Korea Shipbuilding & Offshore Engineering to Buy (previously Market Perform). The target price was maintained at 107,000 KRW. The target price was calculated by applying a target price-to-book ratio (PBR) of 0.7x to the expected 2022 book value per share (BPS) of 154,736 KRW. The target PBR was based on the average of the four major shipbuilders from 2015 to 2020.

Lee Dong-heon, a researcher at Daishin Securities, explained, "We expect benefits from the recovery of the industry and the company is leading the market’s eco-friendly innovation as the world’s number one shipbuilding group." He added, "However, a holding company discount was applied due to the listing of key subsidiaries."

The fourth quarter 2021 earnings are expected to show sales of 4.0461 trillion KRW (+13% yoy) and an operating loss of 384.6 billion KRW (widening deficit). Sales are in line with consensus, but operating profit turned to a loss (consensus was 50.3 billion KRW), representing an earnings shock. Sales reflect increased operations of affiliates, an aggressive plan announced for 2022 of 18.4 trillion KRW (+18% yoy compared to the 2021 plan), and growth expectations for Hyundai Heavy Industries and Hyundai Mipo Dockyard. Operating profit includes provisions for the wage lawsuit, with cash outflows expected to be reflected in the medium to long term in installments.

The researcher said, "From 2022 to 2025, an increased order backlog, rising ship prices, and improving earnings trends are expected." He added, "The issue regarding the rejection of the acquisition of Daewoo Shipbuilding & Marine Engineering has been resolved, and plans for the use of free cash flow will be disclosed after additional planning." He continued, "The company is expected to pursue new businesses in shipbuilding and offshore engineering in line with its existing direction." He emphasized, "For now, the holding company discount is expected to continue, so securing independent business growth drivers in the medium to long term is essential."

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