Daewoo Shipbuilding Profit to Beat Analyst Estimates

Daewoo Shipbuilding & Marine Engineering Co., the world’s third-largest shipyard, said second-quarter profit may exceed analyst estimates after a stronger won helped narrow currency hedging losses.  The Seoul-based shipyard is expected to post a profit of 153 billion won ($123 million) in the second quarter, according to a median estimate by 15 analysts surveyed by Bloomberg. It posted a first-quarter net income of 96.3 billion won.  “We see second-quarter profit almost doubling from the first quarter, above the market consensus,” Chief Executive Officer Nam Sang Tae said yesterday in an interview in Seoul. “It will gradually get better as lower steel costs will be reflected” in our new vessels.  A stronger won has helped Daewoo Shipbuilding cut losses on its currency hedges, Nam said. Steel plate prices have also fallen as much as 42 percent in the first half after more than doubling in 2008, helping boost profitability at the company.  “Steel price declines will slash costs,” said Lee Sok Je, an analyst at Mirae Asset Securities Co. in Seoul. He has a “buy” rating on the stock.
Daewoo Shipbuilding rose 1.2 percent to close at 20,600 won in Seoul. The stock has climbed 34 percent this year, matching the rise in South Korea’s Kospi index.
Waning Orders  Daewoo Shipbuilding has won a total of $300 million worth of contracts this year, compared with $7.31 billion it received in the first half of last year. Orders have dried up as shipping companies had difficulties in getting loans for new vessels.  Daewoo Shipbuilding had a loss of 142 billion won from hedging some of its dollar-denominated orders in the January- March period.
Korea Development Bank and Korea Asset Management Corp., the biggest shareholders of Daewoo Shipbuilding, put on hold the sale of their controlling stake in the yard after rejecting Hanwha Group’s 6.3 trillion won, delayed-payment offer in January. They have yet to set a schedule for a second auction.
The move would not affect the company’s management decision and internal compliance control, Nam said.  “The sale efforts are unlikely to revive within the year, considering global economic and financial situations,” Nam said. “Regardless of it, we are doing what will boost the company’s value and the shareholders also support it.”
An incident late last month where an executive was accused by prosecutors for receiving kickbacks from sub-contractors was unfortunate, Nam said.
“It’s regrettable even though it’s a personal scandal,” Nam said. “Still, it won’t affect the company’s transparency, ranging from operations to accounting.”