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‘Orders have been sluggish’… Samsung Heavy intends to cancel rig sale

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It is expected to turn black due to poor inventory disposal… Should we cut the 7-year deficit?

A drilling ship built by Samsung Heavy Industries.

Samsung Heavy Industries, which has a relatively poor order performance compared to Korea Shipbuilding & Marine Engineering and Daewoo Shipbuilding & Marine Engineering, has done well in selling drillships that are considered “cancer inventory.” Accordingly, attention is focused on whether Samsung Heavy Industries, which ran in the red for 7 years from 2015 to last year, can end the deficit.

According to shipbuilding industry data from the 25th, Samsung Heavy Industries has still not completed 30% of its planned orders for this year. Considering that other major domestic shipbuilders such as Korea Shipbuilding & Marine Engineering and Daewoo Shipbuilding & Marine Engineering completed about 50% of their orders, it is noted that this is a sluggish report card.

However, there are high hopes that Samsung Heavy Industries will end its losing streak later this year. This is because the sale of the drilling ship, whose inventory losses are estimated at hundreds of billions of won, was a success. Samsung Heavy Industries held a board meeting on the 21st and decided to invest 590 billion won in Curios Crete Institutional Private Equity (PEF) joint venture to sell four drilling vessels. PEF is a fund that includes Samsung Heavy Industries and a number of domestic investment institutions with a total of 1.7 trillion won. Its launch is scheduled for May. This is a method where PEF buys a Samsung Heavy Industries drilling rig and resells it on the market, with the proceeds of the sale distributed to investors according to an investment ratio and a promised return on investment.

A spokesman for Samsung Heavy Industries said, “Currently, there are five drilling vessels in the property, and among them, Saipem, Italy plans to sell four, except for one that is chartered (with the possibility of sale).” The rights to the drilling vessel, which Samsung Heavy Industries signed last year on a conditional sale with a European drilling company, are also included in the sale. In fact, it sold virtually all of its rigs, which acted as a barrier to profit.

“This year is different”… Samsung Heavy will start to increase profits

That’s why Samsung Heavy Industries, which ran in the red for 7 years from 2015 to last year, is expected to be able to turn a profit next year. According to financial information company FnGuide, the consensus on Samsung Heavy Industries’ consolidated operating income this year (average expected by securities) was -232.3 billion won. With Samsung Heavy Industries’ consolidated operating loss exceeding 1 trillion won last year, the company is forecast to go bust next year.

The offshore manufacturing sector, where Samsung Heavy Industries has secured a competitive edge, is also in good spirits. Since Russia’s invasion of Ukraine, commodity prices have skyrocketed, pushing the world oil price to over $100 a barrel. In an Overseas Economic Focus survey announced on the 24th, the Bank of Korea announced that major institutions expect the global price of oil (based on Dubai crude oil) to average over $100 per barrel per year. An offshore plant is a facility that excavates, drills and extracts minerals such as oil and gas that are found in the sea. Large-scale offshore plant projects that have been put on hold are resuming as global oil prices top $100 a barrel and new orders are being placed.

In addition, Samsung Electronics, the largest shareholder of Samsung Heavy Industries, also provides support in the event of a crisis. Samsung Electronics participated in a capital raise when Samsung Heavy Industries held a three trillion unit rights offering in 2016, 2018 and 2021. Recently, Samsung Heavy Industries also announced that it has won a 190.1 billion won order for part of Samsung Electronics’ semiconductor construction project in Pyeongtaek.

Of course, there are bad things too. Negotiations on the price of plate for shipbuilding in the first half of the year, which did not find contact with the steel industry, are of variable nature. Since the profitability of shipbuilding is determined by the price of shipbuilding plate, it is highly likely that profitability will deteriorate if the price of plate increases in the first half of this year. Last year, Samsung Heavy Industries had to pay 372 billion won in construction losses after raising the price of heavy plate. Another problem is that the labor shortage at shipyards is exacerbated by the boom in the shipbuilding industry.

Reporter Lee Changhun lee.changhun

Source: Economist

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