NEW orders for ships hauling raw materials to China and finished goods to the rest of the globe are helping Hyundai Heavy Industries Co, the world's biggest shipbuilder, make the strongest start in six years.
The Ulsan, South Korea-based company has defied a United States economic slowdown, recording US$7 billion in contracts in the first Swo months of 2008, more than eight times the same period the year before.
The orders are dispelling concern that the global credit crisis will force owners to slash ship purchases and may lead to a 35-percent profit gain for the 12 months ending December 31 to 30,833 won (US$31.27) a share, according to a Bloomberg News survey of 27 analysts.
Shipping lines are paying about 47 percent more for vessels than a year earlier as economic growth in China has increased demand.
Hyundai Heavy last month raised its 2008 order target by 9.7 percent to a record US$29.4 billion because of better-than-expected sales of ships, including tankers that can transport about two million barrels of crude oil on a voyage.
"South Korean shipyards will fare better than rivals elsewhere because of their competitiveness," said Park Chang Suk, who manages the equivalent of US$404 million, including Hyundai Heavy shares, at NH-CA Asset Management Co in Seoul. "I plan to continue to increase my holdings."
Despite the company's four-year order backlog valued at US$52 billion, Hyundai Heavy shares have fallen about a third in Seoul trading since hitting a record on November 7.
James Yoon at BNP Paribas, whose recommendations on the stock produced a 95-percent return over the past year, predicts the shares will rebound by 47 percent to 540,000 won in the next 12 months. The company is rated "buy" by 25 analysts in a Bloomberg survey. One says to hold and three recommend selling.
Record orders
Hyundai Heavy shares rose 1.4 percent to 371,500 won in Seoul yesterday. The stock has dropped 16 percent this year, compared with an 8.2-percent decline in the benchmark Kospi index.
South Korean shipbuilders, led by Hyundai Heavy, won almost half of the record US$190.6 billion that owners spent last year for new vessels, according to London-based ship broker Clarkson Plc.
They won about 63 percent of global orders in the first two months of 2008, Clarkson said in a research note.
Total orders this year for major South Korean shipbuilders reached US$14.6 billion as of March 19, Yoon wrote in a research note from Seoul. First-quarter performance is "well above the norm," he wrote.
Hyundai Heavy received an order on February 11 valued at US$1.36 billion for eight ships that can each carry more than 10,000 containers that are 20 feet long. That's the company's biggest contract ever for that type of ship.
To increase production, Hyundai Heavy is adding two dry docks to deliver ships as much as three months early. Samsung Heavy Industries Co and Daewoo Shipbuilding & Marine Engineering Co, the second and third-biggest shipbuilders, also are enlarging capacity.
"Expansion projects will increase shipbuilding capacity by almost 20 percent," said Cho In Karp, an analyst at Good Morning Shinhan Securities Co in Seoul.
"The shipbuilding industry is in a super up-cycle and no one can really say when this will end," said Cho Min Keon of Kyobo Investment Management Co in Seoul. "That's why it's a risk to be selling shipbuilding stocks."