Shipbuilding Big Three’s cumulative Q3 operating profit jumps 62% year on year as high-priced orders rapidly translate into earnings

[Financial News] The combined operating profit of South Korea’s three shipbuilders for the first three quarters of this year topped 7 trillion won. Profitability rose sharply from the same period last year as vessels booked at high prices began to be reflected in earnings in earnest. With labor-management talks also wrapping up one after another this year, the companies are seen as being in a position to focus their efforts on building their high-margin order books without disruption.
According to preliminary consolidated earnings disclosures by the companies on the 2nd, HD KSOE, Hanwha Ocean and Samsung Heavy Industries posted combined operating profit of 7.0477 trillion won for January through September this year. That was up 269.5 billion won (61.9%) from 4.3527 trillion won in the same period last year. By company, operating profit rose 55.2% to 4.4483 trillion won at HD KSOE, 80.7% to 1.6629 trillion won at Hanwha Ocean, and 65.5% to 936.5 billion won at Samsung Heavy Industries.
The upward trend in profits was clear even in the third quarter alone. The three companies posted combined operating profit of 2.2713 trillion won, up 689.6 billion won (43.6%) from a year earlier. HD KSOE recorded 1.4472 trillion won, Hanwha Ocean 485.7 billion won, and Samsung Heavy Industries 338.4 billion won. Their operating margins were all in the double digits, at 17.5%, 14.2% and 10.7%, respectively.
High-priced vessels are at the heart of the improved results. Analysts say profitability has risen as construction of vessels ordered at low prices in the past nears completion and the share of high-value-added vessels, including high-priced liquefied natural gas (LNG) carriers, grows. HD KSOE also benefited from strong performance in its engine and offshore plant segments, while Samsung Heavy Industries expanded its growth, driven mainly by LNG carriers and floating liquefied natural gas production facilities (FLNGs).
There was a difference, however, compared with the previous quarter. Operating profit fell 12.0% at HD KSOE and 34.0% at Hanwha Ocean, while it rose 4.1% at Samsung Heavy Industries. Fewer operating days due to summer vacations and the Chuseok holiday, as well as a decline in exchange rates, weighed on results.
Markets expect the three shipbuilders to increase their profits year on year in the fourth quarter as well. According to financial information provider FnGuide, the consensus estimates for fourth-quarter operating profit are 1.6408 trillion won for HD KSOE, 426.7 billion won for Hanwha Ocean and 417 billion won for Samsung Heavy Industries. The combined total of 2.4845 trillion won is 57.1% higher than a year earlier. However, costs such as payments under wage and collective bargaining agreements and annual performance bonuses are seen as potential variables.
Uncertainty in labor-management relations has eased further, and concerns about production disruptions appear to be receding. Samsung Heavy Industries concluded wage negotiations in September, followed by HD Hyundai Heavy Industries, HD KSOE’s key subsidiary, which wrapped up this year’s wage and collective bargaining talks on the 27th of last month, and Hanwha Ocean on the 29th. The companies can now focus on production and delivery schedules, but negotiations with subcontractor unions remain an issue to resolve.
An industry source said, “The key now is how reliably we can build the vessels we have orders for and turn them into profits. With labor-management talks at the primary contractors concluded, timely delivery of high-priced vessels and improved productivity will determine future profitability.”
[email protected] Jung Won-il Reporter