25 July 2007 (entire C report 44 pages)
Korean Shipbuilding Industry
Riding the Commodity Cycle
? The commodity cycle is driving shipbuilding — Most commodities are
transported by ship, so strength in the commodity cycle spurs ship demand.
Thus, continued strength in the commodity cycle means a good long-term
outlook for ship demand.
? Now taking 2011 orders — After substantial orders YTD, Korean shipbuilders’
2010 schedules are mostly complete, and they are ready to take orders for 2011
delivery at higher prices. Still, they maintain their early delivery premium.
? 10–15% price hike expected for the next six months — With strengthened order
books, higher secondhand prices, together with a stronger won and higher steel
prices we expect shipbuilding prices to rise by 10–15% in the next six months.
With the expected hike we revise our earnings for 2010E-12E up by 10-30% for
the shipbuilding companies in our Korea coverage.
? Improving sentiment reflected in 2.6x 07E P/B for global shipping companies —
Sentiment toward ship demand is strong, as reflected in the rise in 2007E P/B to
2.63x for global shipping companies, from 2.16x 2.5 months ago.
? Raising target prices based on 2011E P/B — We raise our target multiples to
2.6x P/B, in line with the global shipping industry, on 2011E book in
consideration of delivery of new orders. We raise our target prices for HHI to
W840,000, Mipo to W660,000, DSME to W120,000, and SHI to W101,000.
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Lynn |
