[Click eStock] "Samsung Heavy Industries Wins Petronas FLNG Order... Expecting Mid- to Long-Term Profit Improvement"

[Asia Economy Reporter Lee Jung-yoon] NH Investment & Securities maintained a buy rating and a target price of 7,000 KRW on Samsung Heavy Industries on the 26th, stating that although the fourth-quarter earnings this year are expected to fall short of expectations due to provisions related to outsourcing costs, the mid- to long-term profit improvement direction is clear.

Samsung Heavy Industries announced on the 22nd a contract for an offshore plant order worth 1.96 trillion KRW. It secured a Floating Liquefied Natural Gas (FLNG) facility for the annual production of 2 million tons of natural gas for Petronas, the Malaysian state-owned energy company. The contract period is from January 2, 2023, to August 2027, and this order will be reflected in next year's order performance. After about one year of design, full-scale construction is scheduled to begin in 2024.

Jeong Yeon-seung, a researcher at NH Investment & Securities, explained, "This is the first offshore sector order in three years since the Ruby FPSO order in 2019," adding, "Samsung Heavy Industries secured an FLNG, which is its strength and has generated operating profit."

He continued, "It is significant as global LNG demand is increasing and production facility orders are becoming active," and "We expect an additional FLNG order in the second half of 2023."

Concerns about labor shortages persist across the shipbuilding industry ahead of the full-scale increase in construction volume starting in 2023. Accordingly, efforts are being made to expand the workforce by raising labor and outsourcing costs. Researcher Kim said, "Regarding the fourth-quarter earnings this year, it is inevitable to set provisions for already secured projects due to the increase in outsourcing unit costs," adding, "We assumed provisions of about 200 billion KRW at the operating profit level, and the operating loss for the fourth quarter is estimated at 269.4 billion KRW."

He added, "The reason for the stock price stagnation despite offshore plant orders is judged to be the possibility of setting provisions and concerns about delayed performance improvement due to labor shortages," and "If workforce expansion is stably achieved through increases in labor and outsourcing costs, the mid- to long-term profit improvement direction is expected to be solid."

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