KSOE Appears Set to Swing Back to Profitability

For the first time in the last four quarters, HHI Group's Korea Shipbuilding and Offshore Engineering (KSOE) division is forecast to make a slight profit.

Korean financial data provider FnGuide estimates that KSOE has earned $56 million in operating profit in the July-September quarter.

KSOE has not turned a profit since the third quarter of 2021, and its cumulative operating losses over the period amounted to about $950 million. Higher steel prices and lower margins on low-priced shipbuilding orders contributed to the substantial loss. KSOE’s rebound in Q3 is attributable to deliveries of high-margin shipbuilding orders, primarily LNG carriers.

KSOE received most of the LNG orders it is currently delivering back in the second half of 2020. With the payments made in installments throughout the construction process, the final payment tranche is usually bigger than the previous ones, raising revenue for the quarter.

Even though the third and fourth quarters are expected to show a modest profit for KSOE, a full year operating loss of $301 million is still expected, since the company reported a loss of $421 million in the first half of the year.

But FnGuide predicts KSOE could turn in a $660 million operating profit for the whole of 2023, marking its first year in the black since 2020, when it eked out a profit of $52 million.

Analysts expect that rising ship prices and a string of new orders this year will improve South Korean shipbuilders' financial outlook.

In the January-August period, the country’s shipbuilders have won orders for 216 vessels, equivalent to 11.9 million compensated gross tons (CGTs). This represents 43 percent of the global shipbuilding orders during the first half of the year.

The LNG shipbuilding sector has seen the best performance, with South Korea snapping up 75 percent of the market share in 2022. Out of the 111 LNG ship orders made in the first eight months of the year, South Korea’s shipbuilders took orders for 83 vessels.