KB Securities raised the target price for Samsung Heavy Industries from the previous 17,000 won to 18,000 won, while noting that the potential for further increases is limited, thus lowering the investment opinion from buy to "hold."
Researcher Jung Dong-ik from KB Securities explained in a report on the 19th, "Since the stock price has risen since the end of May, the potential for further increases compared to the previous day's closing price is limited to 0.8%, prompting a downward adjustment of the investment opinion."
Researcher Jung predicted that it will take time for a conclusion to be reached regarding the termination of the large-scale project contract with Russia. Samsung Heavy Industries announced the termination of a contract worth 4.8 trillion won for the supply of liquefied natural gas (LNG) vessels and shuttle tanker equipment and blocks the day before. This contract was signed with the Zvezda shipyard in Russia in 2020 and 2021.
The Zvezda shipyard notified the termination of the contract last June and demanded the return of an advance payment of $800 million. Samsung Heavy Industries, however, claimed that the uncertainty of the contract had gradually increased due to the prolonged Russia-Ukraine war, leading to the termination of the contract and a damages claim. Researcher Jung stated, "Given the sharply opposing positions of both sides, it is expected to take 2 to 3 years for a final result to emerge."
However, the decline in the workload (backlog) secured by Samsung Heavy Industries is a concern. The backlog based on sales is estimated to decrease from 30.1 trillion won to 25.3 trillion won.
Samsung Heavy Industries also reported low orders in the first half of this year. A total of 18 vessels, including 1 LNG vessel, 13 tankers, 2 container ships, and 2 ethane carriers, amounted to $2.6 billion. This is about half of the $4.9 billion reported for the first half of last year.
Researcher Jung noted that "the achievement rate against the new order target of $9.8 billion this year is slow at 26.5%,” and stated that "if there are no additional orders this month, the backlog is expected to drop to the level of 2.3 years compared to this year's sales."
Researcher Jung predicted that the performance of Samsung Heavy Industries in the second quarter (April to June) will fall short of market expectations, as there are still outstanding orders for container ships from the Taiwanese shipping company Evergreen, which placed large orders when shipbuilding prices were low. He estimated second-quarter revenue of 2.709 trillion won and operating profit of 150.7 billion won.
However, Researcher Jung stated, "(the low-price orders) are scheduled to be delivered entirely in the second quarter, and marine revenues are expected to increase from the third quarter, leading to expectations for improved revenue."