Shipbuilding:CEOs state New Year’s messages
Messages change little
The CEOs of Daewoo Shipbuilding & Marine Engineering, Hyundai Heavy Industries,and Samsung Heavy Industries released New Year’s messages, all of which mentionedsurvival. The statements were largely similar to those issued last year and contained twokey differences. First, the CEOs provided, while not rosy, less pessimistic outlooks thanthey did last year and made fewer comments on this topic. Last year, the CEOs of HHIaffiliates expected the order environment in 2016 to deteriorate, but this year only saidthat they have yet to see signs of a recovery. The DSME head said that while a dramaticrecovery is unlikely, the business environment should improve y-y to some degree. Inother words, he expects a recovery driven by the base effect rather than full-scalenormalization. Their views were largely in line with our views and those of the market.
Second, last year’s messages focused on cost control issues but the ones this year spentmuch less time on earnings-related issues, such as earnings turnarounds and costcontrols. We attribute the difference to shipbuilders: 1) achieving earnings turnaroundslast year; and 2) facing smaller chances of making losses this year—despite a sharp declinein sales—thanks to restructuring.
Summary by company
HHI Group: HHI and Hyundai Mipo Dockyard offered parent-based sales guidance of arespective KRW15t and KRW2.3t, which are down 24% and 34% from our estimatedfigures for 2016 results. This suggests the firms believe sales declines in 2017—that arewidely expected due to thinning backlogs—will exceed market expectations.
DSME: The CEO of DSME stressed that the firm will secure liquidity and bolster itsfinancial structure by following its self-rescuing agreement with creditors and securingcash via advance payments on new orders.
SHI: The New Year’s message has maintained similar themes over the past three years—eg, it once again alluded to survival (as it did in 2015) and urged employees to preventprocess delays for large offshore structures that are scheduled for delivery in 2017 (as itdid in 2016). Overall, no content stood out as extraordinary.