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HHI’s profitability ‘unlikely to improve for next two years’

HHI’s profitability ‘unlikely to improve for next two years’
Hyundai Heavy Industries (HHI) is unlikely to see an improvement to its profitability over the next two years despite its restructuring efforts, due to the continued severe slump in the global shipbuilding market, according to NH Investment & Securities.

The South Korea-based financial services provider said HHI’s sales are projected to contract over the next couple of years against the backdrop of sluggish demand.

“Its operating profit is anticipated to stabilise in 2016 when most of the large-scale marine plant sales are completed and sales of LPG and LNG tankers picked up. However, the phase of low profitability is likely to persist until 2017,” NH Investment & Securities stated.

HHI booked a loss of KRW380.8bn ($328.2m) in the first half ended 30 June 2015, narrowing from the deficit of KRW674.4bn in the previous corresponding period.

The shipbuilder is going through an internal restructuring involving strict cost-cutting efforts and staff layoffs.

“While the global shipbuilding industry’s production capacity is estimated at 130m dwt, 2015 year-to-date orders stand at a mere 68m dwt,” NH Investment & Securities said. “Surpluses in shipbuilders’ production capacity have led to struggles for winning orders, so a structural improvement in profitability is difficult to make.”

The financial services provider added that there is a possibility of a further deterioration in the onshore and offshore plant businesses, and loss-making overseas subsidiaries of HHI could undermine the company’s book value.