Korea Investment & Securities Co. on Feb. 2 said Samsung Heavy Industries is likely to meet the conditions for a stock re-rating thanks to stable fundamentals and the Korea-U.S. shipbuilding cooperation project “MASGA (Make American Shipbuilding Great Again).” It maintained a target price of 34,000 won and a “buy” rating. The previous trading day’s closing price for Samsung Heavy Industries was 29,450 won.

On a consolidation basis, fourth-quarter revenue and operating profit last year were 2.8379 trillion won and 296.2 billion won. They increased 5.1% and 70.0%, respectively, from a year earlier. With an improved sales mix and higher productivity, the company beat guidance for the third consecutive year.

Kang Kyung-tae, an analyst at Korea Investment & Securities Co., cited two reasons for the strong results. First, the operating margin in merchant ships normalized. Kang said, “We estimate the fourth-quarter merchant ship operating margin last year at 10.3%. With improvements in the mix by ship type and order year and stronger productivity, the merchant ship operating margin, which accounts for 75% of consolidation revenue, has entered the 10% range.”

High-margin offshore processes also proceeded smoothly. Kang said, “As the progress rates of the Cedar and Coral North projects rose quickly, offshore revenue appears to have reached the high 500 billion won range.”

This year, Samsung Heavy Industries’ order target is $13.9 billion, up 75.9% from last year’s order performance. Kang said, “The $8.2 billion order target for the specialized product FLNG stands out. We expect $3.2 billion in the first quarter and $5.0 billion during the remaining period,” adding that the $5.7 billion merchant ship order target can be exceeded. In particular, if the Mozambique Area 1 contract takes effect, the price pressure for LNG carriers due in 2029 at Korean shipbuilders is expected to strengthen.

Kang said, “There is no need to stress the growth of the core business—it is stable—and as MASGA-related projects make progress, the conditions for a valuation re-rating will also be in place.”
Source: ChosunBiz