Daewoo Shipbuilding Shares Fall on Concern of Weak Profit

Daewoo Shipbuilding & Marine Engineering Co. (042660), the world’s third-largest shipbuilder, fell the most in 21 months in Seoul trading on concern the company may record weaker profit.

Daewoo Shipbuilding dropped 10.5 percent, the biggest decline since August 19, 2011, to close at 25,600 won. The stock, the worst performer on the MSCI Asia Pacific Index today, has fallen 5.7 percent this year, compared with a 0.5 percent drop for the Kospi index.

The shipbuilder yesterday posted a 42 percent decline in first-quarter profit. Earnings missed analysts’ estimates because of rising costs from offshore operations, according to E*Trade Securities Korea Co. Shipyards, including Seoul-based Daewoo Shipbuilding and Samsung Heavy Industries Co. (010140), have turned to contracts for drilling and floating production units amid a slump in ship orders.

“There seemed to be an unexpected increase in costs from its offshore operations, disappointing investors,” said Park Moo Hyun, a Seoul-based analyst at E*Trade. “The market is worried that more costs could be incurred in these operations, undermining earnings going forward.”

Macquarie Group Ltd. cut its recommendation on the stock to neutral from outperform after the company’s results. Net income, including minority interests, fell to 48.9 billion won ($44 million) in the first quarter. That’s less than the 88.2 billion-won average of 17 analysts’ estimates compiled by Bloomberg.

Operating profit, or sales minus the cost of goods and administrative expenses, slumped 53 percent to 67.3 billion won. That cut profitability to 2.1 percent, compared with 4.6 percent a year earlier.

Daewoo Shipbuilding had $23.6 billion in its order backlog for offshore equipment at the end of April, accounting for 62 percent of total contracts, according to a statement on its website.

To contact the reporter on this story: Kyunghee Park in Singapore at kpark3@bloomberg.net

To contact the editor responsible for this story: Vipin V. Nair at vnair12@bloomberg.net

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