[Click eStock] Daewoo Shipbuilding & Marine Engineering, Management Normalization Just Beginning

On the 16th, Korea Investment & Securities maintained its buy rating and target price of 29,000 KRW for Daewoo Shipbuilding & Marine Engineering (DSME).

Kyungtae Kang, a researcher at Korea Investment & Securities, stated, "If the capital increase payment is made on the 23rd, the Hanwha consortium, led by Hanwha Aerospace, will become the largest shareholder of DSME with a 49.3% stake. On the same day, at the shareholders' meeting, the company name will be changed to Hanwha Ocean Corporation through a resolution (amendment of the articles of incorporation)." He added, "As the volume of high-priced shipbuilding projects increases and the company enters the early stages of business normalization, attention should be paid to the synergies that will emerge in terms of order strategies and new business development."

In the first quarter, sales amounted to 1.4398 trillion KRW (a 15.6% increase), while operating profit recorded a loss of 62.8 billion KRW (continuing the deficit). Sales fell short of consensus estimates by 19.1%, and operating profit also missed the consensus, which had anticipated a loss of 38.9 billion KRW. The reason for the lower-than-expected sales was a work stoppage period caused by a major accident in March. It is worth noting that although the absolute number of working days was reduced due to early-year holidays and the work stoppage, first-quarter sales were similar to those of the fourth quarter of last year. This signals that from the second half of this year, even excluding the Arc 7 icebreaking LNG carriers to be delivered to Japanese shipowners, the proportion of high-priced shipbuilding sales is gradually increasing.

Operating losses continued. Researcher Kang emphasized, "It is important that the absolute scale of the loss has significantly decreased compared to the same period last year and the previous quarter," adding, "One-off factors affecting costs were roughly offsetting each other." In the Qatar NOC FP project, approximately 110 billion KRW of cost reduction occurred by reversing the construction loss provision set in the third quarter of last year, reflecting the contract price increase agreed upon with the client to cover direct cost increases. However, due to overall increases in estimated costs across offshore projects, an additional construction loss provision of about 140 billion KRW was set. Kang assessed, "Excluding these two one-off cost factors, operating profit was calculated as a loss of 32.8 billion KRW. Considering that the normal loss due to fixed cost burdens was 30 billion KRW, if there had been no sales disruptions, the result would have been close to the break-even point (BEP)."

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