Hyundai Heavy Jumps After Posting Biggest Profit in 3 Years

  • Quarterly earnings benefited from cost cuts, oil-refining
  • Daiwa Securities, Citigroup raise recommendations on stock

Hyundai Heavy Industries Co. gained the most in more than a year in Seoul trading after the world’s largest shipbuilder posted its biggest quarterly profit since 2013.

The shares rose 9.6 percent, the biggest advance since November 2014, to close at 126,000 won in Seoul. The stock has climbed 44 percent this year, compared with 3 percent gain in the benchmark Kospi index.

The earnings prompted Daiwa Securities Group Inc. and Citigroup Inc. to boost their ratings on the stock. Hyundai Heavy Wednesday reported second-quarter net income, excluding minority interest, of 292 billion won ($260 million), beating analyst estimates. The company cut costs under its restructuring efforts and its oil-refining unit, Hyundai Oilbank Co., also posted stronger earnings.

“Hyundai Heavy’s earnings surprised on the upside in the second quarter,” Chung Sung Yop, a Daiwa Securities analyst in Seoul, wrote in a note. “We are now turning more bullish on the stock on heightened earnings visibility from its Hyundai Oilbank, shipbuilding and engine divisions.”

Beating Estimates

The net income beat the 130.3 billion-won average of 11 analyst estimates and is the largest since the first quarter of 2013, according to data compiled by Bloomberg. The company reported a second-quarter loss of 241.2 billion won a year earlier.

Citigroup analyst Ethan Kim upgraded Hyundai Heavy’s stock to buy from neutral in a note saying the company’s earnings cycle has passed the bottom.

The world’s top three shipyards, all South Korean, plan to raise a combined 8.41 trillion won through asset and share sales as orders have dried up this year. They are among Asian shipbuilders that are reeling from a slowing global economy and a slump in oil prices, which have led them to post losses or smaller profits last year.

Hyundai Heavy second-quarter sales dropped 17 percent to 9.86 trillion won. Operating profit stood at 557.2 billion won, compared with a loss of 170.9 billion won a year earlier. That beat an average estimate of 159.5 billion won from 10 analysts, according to data compiled by Bloomberg.

Higher earnings from its businesses in offshore, oil refining and marine engine helped lift operating profit in the second quarter, the company said. Oil refining was the second-largest contributor to sales, while accounting for the biggest share of operating profit, 323.4 billion won, or 58 percent.

Profit from its shipbuilding division fell 11 percent in three months after factoring in voluntary retirement packages as part of its restructuring.

Hyundai Heavy won $4.11 billion worth of contracts in the first half, 44 percent less than a year ago. Orders for ships fell 69 percent to $992 million and those for offshore projects dropped 53 percent.

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