Hyundai shipbuilding stocks plunge on grim earnings forecast

The South Korean firm has struggled amid an industry-wide slump in recent years, as global demand slowed and competition from China intensified while overcapacity slashed prices.

Hyundai announced on Tuesday the plan to raise 1.3 trillion won ($1.2 billion) by issuing new shares — a move that would dilute share values — and to list Hyundai Oilbank, its refining unit, on a local stock market next year.

It also released on Tuesday a grim earnings forecast for this year, in which its sales would be more than halved to 15.3 trillion won from 39.3 trillion won in 2016, before falling further to 13.6 trillion won in 2018.

The forecast also flagged operating profit of 46.9 billion won for 2017 — a significant decrease from 1.6 trillion won a year ago — sparking concerns over its overall finances.

The news sent Hyundai shares plummeting 29 percent, close to the daily limit of 30 percent, to finish at 96,900 won in Seoul, while the share price of its subsidiary Hyundai Mipo Dockyard also fell by 16 percent.

Hyundai Heavy Industries said the capital raised by the share increase and the initial public offering of the refinery unit would be used to cover operating costs as well as for research and development.

– ‘Big Three’ under pressure –

South Korea’s so-called “Big Three” shipbuilders including Hyundai, Daewoo and Samsung Heavy Industries were once hailed as a major driver of the country’s export-reliant economy — the world’s 11th largest.

But they have been forced to shed tens of thousands of jobs and sell assets in recent years as a slump in oil prices and global economic slowdown sapped demand for tankers and container ships.

Overcapacity, regional rivalry and the emergence of cheaper Chinese shipbuilders have also squeezed profit margins.

Daewoo Shipbuilding & Marine narrowly avoided collapse this year by a $2.6-billion lifeline from state-run lenders.

Samsung Heavy also announced earlier this month a plan to raise about $1.4 billion in a sale of new shares after flagging bigger-than-expected operating losses for this year and the next.

Tuesday’s annual earnings forecast by Hyundai suggests the firm racked up operating loss of at least 361 billion won in the fourth quarter, said Hwang Eo-Yeon, shipbuilding analyst at Seoul-based Shinhan Investment.

“The grim announcement by Hyundai, on top of the bad news from Samsung, will worsen investor sentiment over the industry for a while,” Hwang said, slashing the outlook on Hyundai from “buy” to “neutral”.

Yoo Seung-Woo, analyst at SK Securities, said the rising price of global steel sheets — a key component to build ships — further dealt a blow to the industry suffering from falling orders, describing shipbuilders’ losses as “inevitable”.

Samsung earlier this month also blamed the recent price hike of steel sheets as a reason for falling profit margin.

“Hyundai’s latest announcement confirmed growing concerns that have been brewing among investors,” Yoo said, adding it would be “unavoidable” for Hyundai to post operating losses throughout next year.