Samsung Heavy Industries more than doubled its operating profit in the first quarter from a year earlier, helped by expanded work on liquefied natural gas (LNG) carriers and floating liquefied natural gas production facilities (FLNG). However, as the ramp-up in output is expected to begin in earnest in the second quarter, first-quarter results missed market expectations.
Samsung Heavy Industries announced on the 30th that, on a consolidation basis, it posted sales of 2.9023 trillion won and operating profit of 273.1 billion won in the first quarter. Sales rose 16.4% and operating profit increased 121.9% from a year earlier.
Compared with the securities consensus (average forecast), sales fell short by 2.9% and operating profit by 19.7%. Quarter over quarter, sales increased 2.3%, but operating profit decreased 7.8%.
The operating margin was tallied at 9.4%. That was 4.5 percentage points higher than 4.9% a year earlier but lower than 10.4% in the fourth quarter of last year. Net profit was 100.1 billion won, up 11.1% year over year.
The profit increase from a year earlier appears to reflect more construction of high-margin core ship types such as LNG carriers in the shipbuilding institutional sector. Samsung Heavy Industries is sequentially working through past orders received at lower prices. Recently, as the share of orders won after ship prices rose has increased, profitability has been improving. In the securities industry, the view is that as some low-price LNG carriers and container ships were delivered in the fourth quarter of last year, the share of higher-price volumes increased in the first quarter of this year.
In the offshore institutional sector, FLNG projects underpinned results. Samsung Heavy Industries is currently carrying out FLNG projects including JTFloating LNG in Malaysia, Cedar in Canada, and Coral in Mozambique. The company said that as work on these projects has accelerated, offshore institutional sector sales are also increasing.
However, the securities industry viewed the effect of expanded production capacity as limited in the first quarter. Samsung Heavy Industries is simultaneously executing three FLNG projects, leaving staffing and equipment allocation within the yard tight. To increase commercial ship output, it decided to restart Dock No. 2, which had been idle.
From the second quarter on, sales growth is expected to widen with increased output. The securities industry expects relatively higher-margin ship types such as very large ethane carriers (VLEC), very large ammonia carriers (VLAC), and shuttle tankers to be assigned to Dock No. 2. A production strategy that uses partner shipyards at home and abroad is also expected to contribute to higher sales.
Samsung Heavy Industries set its annual sales target at 12.8 trillion won for this year. First-quarter sales account for about 22.7% of the annual target.
A Samsung Heavy Industries official said, "With the impact of increased output, sales are expected to rise further from the second quarter," adding, "based on a healthy order backlog of more than three years, we will firmly lay the foundation for stable revenue generation."