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SEOUL—Daewoo Shipbuilding & Marine Engineering Co., the
world’s third-largest shipbuilder, posted its smallest
profit in a year in the fourth quarter as the company
lost a bet the won would strengthen.
Net
income in the three months ended December 31 dropped 30
percent to 51.5 billion won ($55 million), from 73.6
billion won a year earlier, the Seoul-based company
said. Sales climbed 44 percent to a record 2.17 trillion
won, while operating profit more than quadrupled to
105.4 billion won.
The won
weakened 2.3 percent against the dollar last quarter,
reducing gains from Daewoo Shipbuilding’s hedging on
contracts. The company didn’t provide details on its
positions.
South
Korean shipyards sign hedging agreements with banks when
they book orders to shield against potential losses from
currency movements.
“The
bottom-line number was smaller, largely because the
dollar strengthened at the end of last year,’’ said Kang
Young Il, an analyst at Korea Investment & Securities
Co. in Seoul. “But operating profit was within
expectations and I expect this to improve this year as
the company builds higher-priced vessels.’’
Kang has
a “buy’’ recommendation on Daewoo Shipbuilding.
Operating profit, or sales minus the cost of goods sold
and administrative expenses, was the highest in four
years. The profit margin rose to 4.8 percent, from 4.4
percent in the third quarter.
Shipyards in
South Korea, the
world’s biggest shipbuilding nation, are increasing
production by adding new docks and extending the length
of existing ones to meet demand as deliveries stretch
into 2012. Prices for new ships are expected to climb to
a record for a fifth year.
South
Korean yards won almost half of the $189.8-billion
shipping lines spent for new vessels last year, helped
by growing demand for ships to move containers and fuel.
Daewoo
Shipbuilding dropped 0.7 percent to close at 37,100 won
before the announcement. The stock has advanced 23
percent in the past 12 months, compared with a
22-percent climb in South Korea’s Kospi index.
Smaller
rival STX Shipbuilding Co. Wednesday said fourth-quarter
net income gained 12 percent to 28.2 billion won from a
year earlier. Sales rose 53 percent to 724.6 billion won
and operating profit almost quadrupled to 56.7 billion
won.
Shipbuilders face challenges to maintain profit margins
this year as steelmakers try to charge more for steel
plates used to make hulls of vessels. Steel expenses
account for about 15 percent of a shipyard’s annual
sales.
“Higher
steel plate prices will probably cut shipyards’
operating profit margins by about 2 percentage points,’’
said Lee Jae Won, an analyst at Tong Yang Investment
Bank in Seoul.
He has
an “overweight’’ rating on the shipbuilding industry.
Steelmakers including Posco and Nippon Steel Corp. plan
to charge more for steel products, including plates and
sheets used by automakers, as they will probably have to
pay as much as 71 percent more for iron ore.
Dongkuk
Steel Mill Co., which sells 30 percent of the steel used
by South Korean shipyards, raised the price of steel
plates by 13 percent to 820,000 won a metric ton this
month, a company record.
Even so,
shipbuilders will try to pass on the higher costs to
customers, said analysts including Cho In Karp at
Shinhan Good Morning Securities Co.
“The
earnings outlook for shipbuilders will remain upbeat for
three, four years until deliveries are made on new
orders,’’ Cho said. He has an “overweight’’ rating on
shipyards.
For
2007, Daewoo Shipbuilding’s net income jumped by more
than fivefold to a record 321.2 billion won and sales
climbed 32 percent to 7.1 trillion won. It had an
operating profit of 306.8 billion won, compared with a
loss of 169.3 billion won in 2006. (Bloomberg) |
