Samsung Heavy, Daewoo Have Record Profit, Ship Orders

Source: Bloomberg
By Kyunghee Park

July 24 (Bloomberg) -- Samsung Heavy Industries Co., the world's second-largest shipyard, reported record profit and Daewoo Shipbuilding & Marine Engineering Co., the third-biggest, set an all-time high for orders on booming demand for vessels.

Samsung Heavy said today that net income in the April-June quarter more than quadrupled on contracts for oil and gas tankers. Daewoo Shipbuilding said contracts signed this month have reached $4 billion, an industry record. Both companies are based in Seoul.

Shipyards in South Korea, the world's biggest shipbuilding country, will probably report all-time high earnings this year as they book contracts at record prices. A.P. Moeller-Maersk A/S, the world's largest shipping line, and its peers have spent more on vessels for about five years to move more raw materials to China and take away finished goods to the U.S. and Europe.

``Earnings are looking good for shipyards and ship prices will probably remain at record levels,'' said Mo Jae Sung, who helps manage $1.6 billion at Hanwha Investment Trust Management Co. in Seoul. ``Samsung Heavy's announcement has raised expectations that earnings at others will also be very good. There are more new orders than what a lot of people had expected earlier this year.''

Shares of Daewoo Shipbuilding climbed 3.3 percent to 61,900 won in Seoul. Samsung Heavy rose 2.4 percent to 52,100 won.

Rising Ship Prices

Increased orders for vessels to carry containers, coal, oil and gas led Samsung Heavy to raise its target for full-year contracts by 36 percent on July 1, and Daewoo Shipbuilding boosted its forecast by 55 percent on July 8.

Ship prices, rising since 2003, have gained as much as 26 percent this year as economic expansion in China, the world's fourth-largest economy, increases demand for coal, oil and other goods, leading to the need for more new ships to transport them. That means South Korean yards will likely book record orders for at least a fifth consecutive year.

A shipbuilding price index that tracks the value of all types and sizes of vessels rose to 172.6 in June from 171.9 a month earlier, according to London-based Clarkson Plc, the world's largest shipbroker.

The price of a very large crude carrier, the biggest of its type, rose about 80 percent to a record $137.50 million at the end of June this year from the end of 2003. The price of a vessel that can carry 147,000 cubic meters of liquefied natural gas has climbed by more than a third to $225 million, according to Clarkson.

Coal, Gas, Containers

``Demand for vessels that can carry coal, LNG and containers, as well as offshore platforms, are expected to lead the market for new contracts in the second half,'' said Lee Jae Won, an analyst at Tong Yang Merchant Bank in Seoul. He has a ``buy'' rating on Samsung Heavy shares.

Daewoo Shipbuilding and other South Korean shipyards resumed taking orders for bulk carriers this year, the first time in almost three years. Rising demand from China for coal and other commodities has pushed up vessel prices since late 2006.

Net income at Samsung Heavy rose to 130.2 billion won ($142 million) in the second quarter from 32.1 billion won a year earlier, the company said today in a regulatory filing. Sales rose 31 percent to 2.08 trillion won. Operating profit as a percentage of sales widened to 5.2 percent, more than Daewoo Shipbuilding's 4.4 percent margin.

Hyundai Heavy and three other South Korean shipyards have yet to announce second quarter earnings.

Daewoo Shipbuilding's $4 billion in orders this month exceed the previous one-month record of $3 billion, set by the yard in June, the company said in an e-mailed statement. It has received contracts for 29 vessels in July at an average price of $140 million. It has won $11.9 billion in orders for 86 vessels this year, including 56 for container ships.

The contracts include ones from Neptune Orient Lines Ltd., operator of Asia's fourth-largest container line, for four vessels that can each carry 10,000 20-foot standard containers, which are among the biggest of their type.

To contact the reporter on this story: Kyunghee Park in Hong Kong at kpark3@bloomberg.net .