Samsung Heavy Industries: 1Q22 Earnings Far Below Market Consensus

The author is an analyst of KB Securities. He can be reached at newday@kbfg.com. — Ed.

1Q22 earnings far below market consensus

— SHI posted 1Q22 consolidated (K-IFRS) revenue of KRW1.48tn (-5.8% YoY) and operating loss of KRW94.9bn (remain in red YoY; -6.4% OPM).

— In terms of market consensus, revenue missed by 13.4% while operating loss of KRW62.9bn was wider by over KRW30.0bn.

— The operating loss widened because of a shrinking Offshore order backlog and KRW80.0bn in loss provisions attributable to rising input costs (e.g., steel).

— The operating loss was mitigated by KRW37.0bn in change order for offshore projects and a KRW20.0bn reduction in paint costs.

— Removing one-offs, the operating loss would be KRW71.9bn (-4.8% OPM). 

1Q22 order receipts at USD2.2bn

— In 1Q22, Shipbuilding won orders for nine container ships and five LNG ships (USD2.2bn in total for 14 ships), while Offshore failed to book anything.

— The order intake currently accounts for a decent 25% of 2022 guidance (USD8.8bn; -27.9 YoY), with Shipbuilding at USD7.3bn (-40.2% YoY) and Offshore at USD1.5bn (no orders won in 2021). 

— Thanks to the receipts, the order book rose from KRW19.7tn at end-2021 to KRW21.3tn at end-1Q22.

— It is worth noting that 35% of the order book, or USD6.0bn/KRW7.5tn, is from Russia, which is a source of uncertainty (sanctions on Russia; Russia-Ukraine war). 

Work order for Samsung Electronics’ Pyeongtaek semiconductor plant

— On Apr 18, SHI won a KRW190.1bn work order for Samsung Electronics’ Pyeongtaek semiconductor plant (e.g., P3 Ph2 FAB).

— Starting in 2Q22, the chip factory order should help fill the void created by Offshore’s shrinking order backlog, which was a main contributor to the drop in revenue in 1Q22.

— We see SHI winning additional orders from Samsung Electronics, though it is difficult to predict order value. 


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