하나은행 하나금융경영연구소

Slowdown in Shipbuilding Industry Caused Performance Deterioration of

Shipbuilding Equipment Manufacturers, Requiring Risk Management
The shipbuilding industry with forward effects is seeing a decrease in delivery and it
would be difficult that the industry recovers until it wins significant new orders

Delivery of the domestic shipbuilding industry decreased 0.1% year-on-year in 2009 recording 15.45 million CGT. Considering the shipbuilding period, shipbuilding equipment manufacturers seem to have been affected since the financial crisis
The domestic shipbuilding companies won more new orders than expected in 1H of 2010. However, since it is only a half of manufacturing capacity, shipbuilding equipment manufacturers will continue to have difficulties until shipbuilding companies recover significant new orders

As the overall performance was worse in 2009, ship hull equipment manufacturers have been affected more than others

Although major shipbuilding equipment manufacturers had maintained high sales growth until 2008, they saw a slight increase or decrease in sales growth in 2009. In particular, sales of ship hull equipment manufacturers decreased 9.2% year-on-year in 2009
Their overall profitability has slightly decreased. Operating profit margin of ship hull equipment manufacturers dropped 4.7%p year-on-year in 2009 which is more significant drop than others (0.8~1.3%p decrease of ship engine and ship fittings equipment manufacturers and 0.6%p increase of ship electronic equipment manufacturers)
Since combined operating profit margin of large shipbuilders dropped 2.0%p year-on-year in 2009, this figure is similar to that of the previous year. However, with the biggest drop in profitability of ship hull equipment manufacturers, they are vulnerable to a downward price pressure by shipbuilding companies
Operating cash flow, debt ratio and quick ratio were found the worst in 2008. They slightly improved in 2009 with the industry’s efforts to secure cash liquidity. However, since a slowdown in the shipbuilding industry is expected to last longer, shipbuilding companies other than outstanding ones will continue to have difficulties
Manufacturers of blocks and casting & forging have been most affected. Although companies whose key clients are small to mid-sized shipbuilding company have recorded significantly worse performance, special valve manufacturers whose key clients are large shipbuilding companies or electric/electronic companies which have diversified their business have recorded modest performance

There may be some business opportunities, but shipbuilding equipment manufacturers are required to put priority on risk management

Despite a slowdown in the shipbuilding industry, shipbuilding equipment manufacturers have developed technical power and have achieved modest profitability and external growth through business diversification. Accordingly, there may be business opportunities such as IPO or lending. There are also network lending possibilities with large shipbuilding companies
However, since listed companies in the industry have recorded a constant sales decrease and worse profitability based on quarterly performance, they should put priority on risk management
In evaluating risk factors, relationships with large shipbuilding companies, business diversification and technical power should be considered. Completing authorization or verification for new product development or business diversification can have a positive impact on companies, but it takes time to see actual performance results