Shipbuilding Time to Change

8/2/2019 Shipbuilding Time to Change

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Analyst

Sung, Ki-Jong (02)768-3263 [email protected]

Shipbuilding

Time to change



Shipbuilding 2

Contents [Summary]

I. 2011 Review: Orders concentrated on a few ship types

II. 2012 Shipbuilding outlook

III. 2012 Offshore market outlook

IV. Conclusion: Finding the answer offshore

V. Investment strategy & valuation: Overweight large caps

VI. Promising shares

Hyundai Heavy Industries (009540 KS/Buy/TP: W470,000)

Samsung Heavy Industries (010140 KS/Buy/TP: W40,000)



Shipbuilding 3

The offshore plant market should continue to enjoy a boom in 2012, as oil prices will

likely remain high, and investments in crude oil and natural gas should continue

increasing. Floating drilling facilities (drill ships and semi-submersible rigs) and FPSOsare operating at full capacity on the expansion of deep-sea resources development.

Investments in advanced concept ships for gas field development are also forecast to

continue rising. In 2012, LNG FPSO and LNG FSRU orders should soar, and new

concept offshore facilities (e.g., LNG FPGU) are expected to hit the market.

We maintain our Overweight rating on the shipbuilding sector, but advise investors tofocus on the top three shipbuilders when their P/B nears the previous low of 1.2x (currently

trading at 1.3x). The top three shipbuilders have broadened their business portfolios

beyond shipbuilding and offshore businesses, securing stable orders and cash f lows. We

are interested in Hyundai Heavy Industry (009540 KS/Buy/TP of W470,000) and Samsung

Heavy Industries (010140 KS/Buy/TP of W40,000).

Shipbuilding outlook

Offshore outlook

Investment summary

All major vessel types including containerships, tankers and bulk carriers are forecast to

experience weakening demand. However, LNG carrier demand should remain robust,

considering that: 1) natural gas has been universally recognized as the optimal alternative

energy source in terms of environmental friendliness and energy efficiency; 2) the

geographical difference between production (deep sea, Australia and Africa) andconsumption (mostly advanced economies) should boost LNG carrier demand steadily; and

3) the Japanese nuclear disaster has sparked a rush to develop natural gas, pushing the

day rate for LNG carriers to above US$130,000.

In 2012, we forecast that shipbuilders will suffer a plunge in orders, as 1) ship financing

should tighten on the back of the eurozone fiscal crisis and 2) the shipping industry will likely

stagnate amid a global economic downturn. As such, the global shipbuilding industry should

undergo another round of restructuring. In particular, the merchant ship market will likelyslow down.

[Summary]

0

100

200

300

00 01 02 03 04 05 06 07 08 09 10 11 12 13

Global ship financingNew orders

(US$bn)

11F 12F 13F

0

30

60

90

05 06 07 08 09 10 11 12

0

9

18

27

36

45Avg. market cap of the three largest shi pmakers (L)

Avg. ROE of the three largest shi pmakers (R)

(%)(market cap, W)

1.0x

2.0x

3.0x

4.0x

P/B 1.2x P/B 1.8x

0

10,000

20,000

30,000

40,000

03 04 05 06 07 08 09 10 11F 12F

Non-shipbuilding

(Wbn)



Shipbuilding 4

0

2

4

6

8

10

00 01 02 03 04 05 06 07 08 09 10 110

1,500

3,000

4,500

6,000

7,500New orders (L)

Shipbuilding share price index (R)

(CGT mn) (p)

11F 12F

31.5

69.389.8

165.1

30.3

107.8

261.5

165.5

170.5

71.7

Global ship financing (US$bn)

[Summary] Shipbuilding market to slump amid eurozone financial crisis

- Large European banks finance roughly 80% of global shippurchases. In 2012, we expect the global shipbuilding industry toslip into a recession and undergo another round of restructuringdue to the eurozoneÊs financial turmoil and a global economicslowdown.

- Global shipbuilding orders are projected to contract 30% in 2011(to 27mn CGT), and an additional 30% in 2012.

- Meanwhile, investments in global offshore businesses are forecastto continue expanding. Natural gas-related investments should beparticularly wide-ranging, including LNG carriers, floating drillingfacilities (drill ships and semi-submersible rigs), floating productionfacilities (FPSO and LNG FPSO) and offshore support vessels.

- In 2011, Korean shipbuilders will likely receive offshore plantorders of US$30bn, including 32 drill ships (a record), one LNGFPSO and six LNG FSRUs (first order ever).

Source: Clarkson, KMI, KDB Daewoo Securities Research

Global new orders, shipbuilding share price index and financing

Second round of restructuring – Invest in large-cap shipbuilders

- Shipbuilders are forecast to undergo another round of restructuring amid the European debt crisis and a globaleconomic downturn. Thus, we recommend investors to mainly focus on the top three domestic shipbuilders, which canafford to diversify their businesses to incorporate offshore/onshore plants, offshore support vessels, etc. We believe

that large shipbuilders will continue to report stable orders and cash flow next year on the back of robustcompetitiveness.

- Large Korean shipbuilders are anticipated to deliver slightly sluggish earnings in 2012, but we recommend thatinvestors buy the stocks when their average P/B nears a 10-year low of 1.2x. Hyundai Mipo Dockyard is currentlytrading at a P/B of only 0.5x, and its expansion into the offshore support vessel segment should help offset weakmerchant ship sales.

- HHI (009540 KS/Buy/TP of W470,000), SHI (010140 KS/Buy/TP of W26,000)

Merchant ship orders todecline but offshoreinvestments to rise



Shipbuilding 5

- November cumulative orders fell 26.6% YoY, to 16.94mn CGT, with containership and

LNG carrier orders accounting for 45% and 35% of total orders, respectively. Korea

and China were responsible for a respective 50% and 30% of total orders. Korean

shipbuilders have secured almost 70% of total orders for the two types of ships.

- For LNG carriers, speculative demand seems to have surged due to the Japanese

nuclear disaster, an increase in gas development and expectations for higher gas

demand. Annual orders are forecast at 60 units, with Korean shipbuilders estimated to

secure 51 units. Around half of the orders are expected to come from Greece.

- Major clients for mega-scale containerships are large shippers such as Maersk and

CMA CGM. Orders from second-tier shippers have been delayed to next year due to

the global financial turmoil.

Source: Clarkson, KMI, KDB Daewoo Securities Research

Robust orders for LNG carriers and mega-scale containerships

I. 2011 Review: Orders concentrated on a few ship types

Investments in deep-sea marine resources development are expanding amid

persistently high oil prices and increased investments in gas field development.

Drill ship orders hit an all-time high of 32 units. First-time orders include one

mega-scale LNG FPSO (roughly US$5bn) and three LNG FSRUs. Orders forfour FPSOs are also expected.

Orders for offshore support vessels are also expanding along with large

offshore plant orders.

„

‰

Orders by vessel type (as of November)

Floating offshore plant market is boomingNew order trend of global shipbuilders

New orders by ship type (quarterly)

Tanker

8%

Container

ships

43%

LNG carrier

20%

LPG carrier

1%

Bulkcarrier

28%

0

5

10

15

20

25

1Q03 2Q04 3Q05 4Q06 1Q08 2Q09 3Q10 4Q11

Tanker Bulk Carrier Containerships

LNG Carrier LPG Carrier

(CGTmn)

Expecting orders for

mega-sized

containerships, such as

LNG c arriers

0

100

200

300

00 01 02 03 04 05 06 07 08 09 10 11 12 13


(US$bn)

11F12F 13F



Shipbuilding 6

- The shipping industry should experience intensifying competition and slowing cash

flows amid a global downturn (except for LNG carriers). Freight charges and second-

hand ship prices of tankers, containerships and bulk carriers are unlikely to recover, as

freight traffic is growing slower than shipping tonnage. As such, shipbuilding orders

from shipping companies should plunge.

- Restructuring in the shipping industry will likely accelerate, including M&As and joint

management.

- Only 11 Korean shipbuilders won orders over the past two years (down 54.2% from

2008 till now). Those which failed to receive orders will likely undergo restructuring;

most of them will either be driven out of the market or sold off.

- Chinese shipbuilders are also suffering. ChinaÊs shipbuilding association reports that

46% of shipbuilders failed to win a single order in the past year, and that M&As are

growing.

- The global shipbuilding industry is forecast to undergo major restructuring in the next

two years amid a prolonged economic recession.

1. Tighter ship financing

2. Sluggish shipping industry

3. Restructuring


- European banks (which finance roughly 80% of global ship purchases)should have less room for loan growth due to the eurozone debt crisis.However, ship financing is unlikely to fall markedly, thanks to Asian financialinstitutions and the diversification of ship financing support measures.

- Although European financial institutions will likely reduce ship financing,second-tier rivals should take this opportunity to gain market shares.

- Financing for merchant ships will likely contract, but large scale financing foroffshore businesses should expand.

0

300

600

900

1,200

02 03 04 05 06 07 08 09 10 11

Bulk carriers (BDI )

Containerships (HR)Tankers (WS)

(1/02=100)

0

10

20

30

2008 2011

No. of shipbuilding firms

(no.)

Down 54.2%

0

100

200

300

00 01 02 03 04 05 06 07 08 09 10 11 12 13


(US$bn)

11F 12F 13F



Shipbuilding 7


- The short-term charter rate of LNG carriers hit a historic high on December 1st,

breaking above US$140,000. With scant LNG tanker deliveries throughout 2012, LNG

freight rates are likely to continue to rise in the year ahead.

- Natural gas emits less pollutants (CO2, SO, CO, NO) than other energy sources and is

thus recognized as the best alternative source of energy. There are also abundant

reserves both onshore and offshore.

- Countries have increased their natural gas inventories in the wake of the Japanese earthquake

and nuclear disaster, boosting LNG carrier demand. As natural gas has been gaining

importance not only as a power source but as an alternative energy that meets the needs of

businesses and households, countries are planning to increase natural gas imports.

- Growing investment in offshore gas fields by major firms is likely to increase LNG

carrier demand. As LNG FSRUs are also gaining popularity as a natural gas storage

facility (terminal), orders for LNG FSRUs should sharply grow in 2012.

LNG carriers are the only bright spot

Source: Clarkson, Gibson LNG Report, KDB Daewoo Securities Research

LNG carrier fleet, demolition and deliveries

Energy source(X)

Major pollutants & relative emission levels (LNG=1)

CO2 SO CO NO Dust

LNG 1.0 1.0 1.0 1.0 1.0

LPG 1.0 0.0 393.5 78.7 833.3

Oil (B-C fuel oil, kerosene,etc)

1.2 1,396.0 1,660.5 544.1 6,298.6

Coal (Bituminous,anthracite)

1.6 3,191.7 3,270.2 1,134.1 14,100.6

Others

Nuclear energy Nuclear waste (uranium, plu tonium, cesium)

Market outlook by vessel type:LNG carriers

Trend and outlook of the LNG carrier charter rate

Natural gas is the best alternative energy source

0

20

40

60

00 02 04 06 08 10 12F 14F

0

2,500

5,000

7,500

10,000LNG carrier fleet (L)LNG carrier demolition (L)

LNG carrier delivery (R)

(cubic meter mn) '000 cubic meter

0

40

80

120

160

11/08 11/09 11/10 11/11

Short-term (6 months~2 years)

Spot (less than 6 months)

(US$ '000/day)

11/11F



Shipbuilding 8

- While pipelines have reached their limits, LNG carrier transport volume is likely to

continue to grow. Global natural gas transport volume increased 10.1% YoY in 2010.

In particular, LNG carrier transport volume grew 22.6% YoY. On the other hand,

pipeline transport volume expanded by merely 5.4%.

- Going forward, as long distance transport across water grows, the percentage of LNG

transport should increase.

Source: BP, Douglas Westwood, KDB Daewoo Securities Research

LNG carriers to gain popularity


Global natural gas transport map

Natural gas demand trends and outlooks by mode of transport

- Global natural gas consumption is expected to remain on the rise. The growing

geographical distance between natural gas producers and end-consumers suggest the

preferred mode of transport will shift from pipelines to LNG.

- Robust development in offshore gas fields should support LNG carrier demand growth

for the time being.

- Increasing investment in offshore gas fields should also lead to diverse types of LNG

carriers, such as LNG FPSOs and LNG FSRUs.

Greater need for LNG carriers




Shipbuilding 9


- We expect global LNG carrier orders of 50 units in 2012. LNG demand is forecast

to reach at least 6.46mn cbm for the next two years. This amounts to at least 85

LNG carriers.

- The first chart below shows BP and Wood MackenzieÊs natural gas demand

forecasts and the LNG tonnage growth rate based on existing orders through

2015. Given the anticipated slow growth of the LNG tonnage, we expect to seeadditional order growth.

- In 2011, customers were deciding whether or not to act on 22 LNG vessel options

with domestic shipbuilders. We expect orders for these options to be placed within

2012.

2012F LNG carrier orders of at least 40 units

Source: Company data, Clarkson, BP, Wood Mackenzie, Worldyards, KDB Daewoo Securities Research

Trends and outlooks of LNG carrier orders and prices

LNG carrier demand and forecasts LNG demand and LNG carrier fleet growth Optional orders for LNG carriers by domestic shipbuilder


2.2

5.16.5

15.1 17.2

8.5 9.58.5 9.5

0

5

10

15

20

CAGR 2001-2010 CAGR 2005-2010 CAGR 2010-2015

LNG fleet growthLNG demand growth, BPLNG demand growth, Wood Mac

(%)

0

20

40

60

80

96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13

(units)

0

50

100

150

200

250

300LNG carrier orders (L)

160K cbm LNG carrier price (R)

(US$mn)

12F

Korean shipbuilders have already

secured 21 shipbuilding options in 2011

11F 13F

86 6

20

2

4

6

8

10

HHI SHI DSME STX O&S

(units)

6467107788519301,014

200

400

600

800

1,000

1,200

05 07 09 11F 13F 15F

6% growth 8% growth 10% growth

12% growth 14% growth 16% growth

(mn cbm)

483mn cbm in 2010

Base case

If LNG traffic increases at a CAGR of 6%

until 2015, then we ex pect orders for an

additional 85 units of LNG carriers (160K

cbm) over the next two years





Shipbuilding 11

II. 2012 Shipbuilding outlook: [Containerships]Can second-tiers catch up with the industry leaders?

- 2011 was driven by mega containerships, as large shippers focused on enhancing

their competitiveness by saving costs. The key issue for 2012 will be whether

second-tier shippers can catch up with first-tier players.

- Given weak ship financing and the downturn in the shipping industry, we expect

muted mega containership orders from second-tier shippers. Thus, we expect

containership orders to drop over 50% YoY in 2012.

- However, in line with the delivery schedule of mega containerships, we expect

orders for small-sized containerships (feeder vessels) to grow.

- We estimate containership order volume at 1.5mn TEU in 2011 (mega

containerships should account for 85% of the total). Total fleet size is estimated at

14mn TEU.

- Around 1.6mn TEU containerships are set to be delivered in 2012, equivalent to11% of the existing fleet. Given the high number of deliveries compared to container

traffic growth, we expect to see oversupply in the market if the economy slows down.

Mega containership orders to plunge

Source: Alphaliner, CCFI, Clarkson, KDB Daewoo Securities Research

Trends and outlooks of containership orders and prices

Mega-sized containership holdings and new orders Containership idle fleet and CCFI Containership fleet, delivery and demolition forecasts

Market outlook by vessel type:Containerships

0

700

1,400

2,100

2,800

3,500

96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12

('000 TEU)

0

5,000

10,000

15,000

20,000

25,000

30,000Containership new orders (L)

Containership price (R)

(US$/TEU)

12F11F

0

5

10

15

20

00 02 04 06 08 10 12F 14F

0

1,000

2,000

3,000

Containership fleet (L)

Containership demolition (L)Containership delivery (R)

(TEU mn) ('000 TEU)

8777

5233

192022

1215

10109865

511

2040

1012

104

1235

164

010

513 29

7810

21010

0 30 60 90 120

MaerskMSC

CMA CGMCOSCO

Hapag LloydCSCLOOCL

EvergreenHanjin Shppg

NYKYang Ming

HMMK Lilne

ZimAPL

MOLUASCCSAV

MISC Bhd.Hamburg Sud

Unassigned Holdings New orders

0

500

1,000

1,500

2,000

10/08 4/09 12/09 6/10 12/11 5/11 11/11

600

800

1,000

1,200

1,400Idle fleet (L)

CCFI (R)

('000 TEU) (index)



Shipbuilding 12

II. 2012 Shipbuilding outlook: [Tankers] A gathering storm

- In 2012, tanker orders are expected to fall 15% YoY (75mn CGT) and prices

are likely to stay weak. (However, if the Chinese governmentÊs ship fund drives

massive tanker orders, we could see order growth of over 30% YoY.)

- Tanker tonnage is forecast to grow 3.8% in 2012 and 6.7% in 2013, while oil

demand growth should slow to 1.5% YoY. Thus, tanker freight rates are

unlikely to recover.

- The global economic slowdown and the increasing use of alternative energies

should lead to weaker oil demand. Still, OPEC is likely to scale back its output,

helping maintain high oil prices.

Protracted downturn expected in tanker market

Source: IEA, BP, Clarkson, KDB Daewoo Securities Research

Trends and outlooks of tanker orders and prices

Tanker fleets and fleet growth forecasts Tanker fleets and WS trend Oil demand and growth trend and forecasts

0

20

40

60

80

100

96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12

(DWT mn)

0

100

200

300

400

500

600

700

800Tanker new orders (L)

Tanker price (R)

(US$/DWT)

12F11F

0

90

180

270

360

450

540

00 02 04 06 08 10 12F

-2

0

2

4

6

8

10Tanker fleet (L)

Tanker fleet growth (R)

(DWT mn) (%)

0

100

200

300

400

500

600

00 02 04 06 08 10 12

0

50

100

150

200

250

300

350Tanker fleet (L)

WS (R)

(DWT mn) (p)

F

50

60

70

80

90

100

1980 1988 1996 2004 2012F

-5.0

-2.5

0.0

2.5

5.0Oil demand (L)

YoY (R)

(%)(mn bbl/d)

Market outlook by vessel type: Tankers



Shipbuilding 13

- In August 2008, the Chinese government decided to create a ship fund to support the shipping

industry. The country created the China Ship Fund in December 2009, and placed orders for

vessels worth RMB15bn to Chinese shipyards in 2010. Most of the orders were for bulk carriers.

- The China Ship Fund (ChinaÊs first ship fund) was designed to promote and stabilize the

shipbuilding industry.

- The figure below is based on the assumption that the ship fund will only place orders for

tankers (VLCC) going forward. Orders in 2012 are projected to be twice as high as during the

historic boom years of 2006~2007.

Source: Clarkson, Tradewinds, KDB Daewoo Securities Research

China Ship Fund to place large orders, but⁄

II. 2012 Shipbuilding outlook: [Tankers] A gathering storm

The Chinese governmentÊs large-scale orders (placed through the ship fund)

might revive a handful of shipbuilders in the short term, but ruin the global

tanker market in the mid- to long-term.

„

‰

New orders from China Ship Fund

VLCC orders and tanker fleet growth forecasts

Market outlook by vessel type: Tankers

0

3

6

9

2010 2011F~2012F

Order size

(US$bn)

Large orders for bulk

carriers

Expect massive orders

for tankers

0

30

60

90

00 01 02 03 04 05 06 07 08 09 10 11 12

-4

-2

0

2

4

6

8

10VLCC orders (L)

Tanker fleet growth (R)

(DWT mn) (%)

F F

China Ship Fund to place

massive orders for tankers



Shipbuilding 14

II. 2012 Shipbuilding outlook: [Bulk carriers] Recovery not in sight

- In 2012, bulk carrier orders are expected to decrease 20% YoY (in terms of CGT), and

prices are projected to be weak. (The China Ship Fund is expected to focus on tankers

going forward.)

- Bulk carrier tonnage growth should reach 14.5% in 2012 and 16.8% in 2013, outpacing

global dry freight traffic growth. Thus, the bulk carrier market is unlikely to recover in the

short term.

- In 2012, investments are expected to increase across the industry on the easing ofregulations in China. Increasing raw materials inventory (iron ore, coal, etc.) might boost

bulk carrier freight rates and second-hand vessel prices in the short term. However, this will

not be enough to revitalize the bulk carrier market.

- Demand for handysize bulk vessels is expected to grow on an increase in the demolition of

obsolete vessels (currently over 35% are outdated).

Recovery not in sight

Source: Clarkson, MySteel.net, KDB Daewoo Securities Research

New orders for bulk carriers and new building price trend

Bulk carrier fleets and fleet growth forecasts Secondhand price-new building price spread and BDI Iron ore inventories in China

0

3,000

6,000

9,000

12,000

06 07 08 09 10 11

Iron ore inventories in China

(mn tonnes)

0

30

60

90

120

150

180

96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12

(DWT mn)

0

200

400

600

800

1,000Bulk new orders (L)

Bulk carrier price (R)

(US$/DWT)

12F11F

0

100

200

300

400

500

600

700

00 02 04 06 08 10 12F

0

5

10

15

20Bulk carrier fleet (L)

Bulk carrier fleet growth (R)

(DWT mn) (%)

0

3,000

6,000

9,000

12,000

00 02 04 06 08 10

-400

-250

-100

50

200

350

500

Average monthly BDI (L)

Secondhand price-new building price (R)(US$/Dwt)(p)

Ship prices

unlikely to

rise

Market outlook by vessel type: Bulk carriers



Shipbuilding 15

Mid- to long-term outlook

- A decrease in new orders will likely depress vessel prices, and shipbuilders are

likely to suffer financial difficulties. During the past year, only 11 companies won

orders, which means that over half of all Korean shipbuilders have fallen into or are

in danger of bankruptcy.

- Prices of containerships, tankers, and bulk vessels are expected to be

weak in 2012 due to fewer orders. Only LNG carrier prices are projected to

rise on robust orders.

- As the global shipbuilding industry has relapsed into a long-term slump,

shipbuilders must make changes to remain competitive.

- The shipbuilding market is expected to rebound in 2H13 on the completion

of restructuring and the easing of oversupply in the shipping industry.

Shipbuilding industry requires restructuring

Source: Clarkson, KDB Daewoo Securities Research

Global shipbuilding industry expected to recover from 2H13

New building price and new order growth trend Shipbuilding orders in 2008 and 2011 New building price trend and forecasts by ship type

2nd-phase restructuring through 2013

-80

-30

20

70

120

170

90 94 98 02 06 10 14F

-60.0

-30.0

0.0

30.0

60.0

90.0

120.0New orders (R)

Order growth, YoY (L)

(%) (CGT mn)

15,000

20,000

25,000

30,000

04 05 06 07 08 09 10 11 12 13

0

500

1,000

1,500

2,000

2,500

Containership (L) Gas carrier (R)

Ta nke r (R) Bulk ca rrier (R)

(US$/Dwt)(US$/TEU)

12F 13F11F

-100

0

100

200300

400

97 99 01 03 05 07 09 11

-30

-20

-10

0

10

20

30

40

Order growth, YoY (L)Shi rice rowth, YoY (R

(%) (%)

0

10

20

30

2008 2011

No. of shipbuilding firms

(no.)

Down 54.2%



Shipbuilding 16


Source: KDB Daewoo Securities Research

Offshore plants by marine resource

Petrochemical plantetrochemical plant

FPSOemi-submersible rig Drill shipixed platform

AHTS

Jack-up

Shuttle tanker

PSV

Deep-sea offshore plant market is worth US$100bn

Expansion of offshore plant market due todeep-sea development



Shipbuilding 17


Source: Data from various sources, KDB Daewoo Securities Research

Gas fields and import/export terminals

Large-scale LNG projects Expansion of high-margin offshore facilities market, including LNG FPSO and FSRU

LNG – Under construction

LNG – In operation

Regas Position – Under constructionRegas Position – In operation

Sakhalin

Pluto, Gorgon(Woodside)

QG-4

Sakhalin

Pluto, Gorgon(Woodside)

QG-4

LNG – Under construction

LNG – In operation

Regas Position – Under construction

Regas Position – In operation

FSRU import/export terminals

„LNG FSRUs areterminals used toexport/import naturalgas‰




Shipbuilding 18


Expansion of offshore equipment market

Increasing oil and gas E&P projects Expansion of high-margin offshore facilities market (including LNG FPSO and FSRU)


Jack-upRig

FixedPlatform

DrillShip

FPSO LNG FPSO LNG FSRU

LNG FPSO

Semi-submersible

rig

Drillship FPSOJack-up

rig

LNG FSRU

LNG FPGU

New offshore quipment arketDrilling rigs

Production &

storage

Power plant

- Development of new offshore equipment isaccelerating on the growing need to accessnatural resources from the deep sea (on the backof high oil prices and the depletion of fossil fuels).

- Growth in deep sea development is boostingfloating drilling facility orders. Drillship ordersreached a historic-high level of 28 units in 2011.

- Shell placed orders for LNG FPSOs (to startoperations in 2016) with Samsung HeavyIndustries. DSME signed a contract to designtwo LNG FPSOs.

- Companies have started to place orders for LNGFSRUs (import terminals for LNG). So far, sixunits (including two optional orders) have beenordered. The popularity of LNG FSRUs isexpected to increase.

- Major oil companies are expected to increaseinvestments in deep sea development. Despitethe eurozone debt crisis, natural gas developmentappears to be a priority due to high oil prices.Historic-high LNG-related investments areexpected in 2012.

Evolution of deep seadevelopment equipment




Shipbuilding 19



Drilling facilities [Semi-submersible rigs]: Fully utilized

Drilling rig utilization rate by region Global: 79.4%

54.1%

80.5%

82.1%

87.9%

77.8%

„Floating rigs, whichaccount for 51% of allrigs, are fully utilized.‰Jack-up rigs

45%

Semi-sub

14%

Tender barge

3%Tender

1%

Drillship

37%



Shipbuilding 20


- Globally, roughly 810 drillships (rigs) are currently in operation (the utilization ratio is

estimated at 80%). Representative floating type drillships include drillships and semi-

submersible rigs (around 51%).

- Floating drillships are operating at full capacity despite large orders. Demand should

continue to rise steadily in 2012, as deep-sea resources development pushes up demand

for survey ships and rigs. The floating drilling facility market should continue to thrive in

2012.

- We forecast floating-type large drillship orders at roughly 30 units in 2011, and 25 units in

2012. The floating type rig market should continue to be dominated by three Korean makers.

- Semi-submersible rigs are useful in tough environments such as the North Sea. However,

drillship demand is also rising steadily thanks to improvements in design and control

equipment to better adjust to such environments.

- Drillships are priced around US$500~600mn per unit, while semi-submersible rigs are

priced around US$600~700mn (prices may differ depending on options and requests).

Floating drilling facility market to continue booming in 2012

Source: Company data, ODS-Petrodata, KDB Daewoo Securities Research

Floating drilling facility order trend for the Big 3 shipbuilders

Floating drilling facility freight charge and utilization rate Drillship

Drilling facilities [Drillships]: Fully utilized

Global drilling facility fleet and utilization rate trend

0

10

20

30

40

05 06 07 08 09 10 11F 12F

Drillship

Semi Rig

(Units)



Shipbuilding 21


- West Douglas expects FPSO installation to fall to a record low in 2012, given that FPSO

orders decreased for two years following the Lehman crisis. However, orders should

surge for several years to come.

- Infield System estimates that FPSOs accounted for roughly 46% of the global floating

production facilities in 2003~2010 (25% by FSO and 7% by semisubmersible rigs). Over

the next decade, we expect the portion to increase to 58%.

- Currently, around 95% of the floating drilling facilities are being utilized. Demand for

floating production facilities should rise further when deep-sea resources development

and drilling facility orders expand.

- FPSO demand should come mainly from South America (29%), West Africa (28%) and

Australia (12%).

Floating drilling facility market to flourish in 2012

Source: Company data, Infield System, West Douglas, KDB Daewoo Securities Research

Floating production facility installment trend by type

Floating production facilities (2003~2010) Floating production facilities (2011~2015F) FPSO

Production facilities [FPSOs]: Fully utilized

FPSO

46%

FSO

25%

TLP

5%

FSU

2%

SPAR

5%

Semi-sub

7%

FPS

7%

Others

3%

FPSO

58%

TLP8%

FSO

11%

Others

2%FPS

6%Semi-sub

10%

SPAR

4%

FSU

1%

0

5

10

15

20

25

06 07 08 09 10 11F 12F 13F 14F 15F

FPSO

FPSS

TLP

SPAR

(US$bn)



Shipbuilding 22

0

20

40

60

80

100

00 01 02 03 04 05 06 07 08 09 10 11F 12F

WTI

Dubai

(US$/bbl)

BEP for gas field development project

EIA forecast

CERA forecasts


- Major oil companies are the main customers of drilling

facilities and FPSOs. If oil prices remain at elevated levels,

this would ensure stable cash flows for oil companies,

suggesting that investments are likely to expand. (Global

forecasters expect sustained high oil prices.)

- Despite the European debt crisis, we do not expect major oil

companies to drastically cut back orders. Although large

European banks are likely to further tighten credit standards

and reduce financing to shipping companies given the

challenging industry environment, we expect financing for

offshore projects to remain intact thanks to the ongoing

offshore up-cycle.

- If oil prices remain high, major companies with high

creditworthiness will be considered attractive investments.

Floating drilling facility market to

continue booming in 2012

Source: Company data, Thomson Reuters, Infield System Ltd, Douglas Westwood, KDB Daewoo Securities Research

Oil price trend and breakeven point for oil field investment

Number of FPSOs in operation FPSO investment breakdown (2011~2015F) FPSO order outlook for the Big 3 shipbuilders

Production facilities [FPSOs]: Fully utilized

„Sustained high oil pricesare critical to the growthof the global offshorefacilities industry.„

.„

0

1

2

3

02 03 04 05 06 07 08 09 10 11F 12F

HHI SHI DSME

(units)

Others

42%

Gazprom

3%

Chevron

6%

Shell

6%BP

3%

Eni

4%

Total9%

Exxon

Mobil

3%

Wood

side

2%

Petro

-bras

22%

0

10

2030

40

50

P e t r o b r a s

C N O O C

E x x o n M o b i l

T o t a l S A

C h e v r o n

E n i S P A

B P P L C

R o y a l

P e t r o n a s

W o o d s i d e

S t a t O i l

C N R

P e t r o

T a l i s m a n

No. of FPSOs in operation

(units)



Shipbuilding 23

0

1

2

3

4

02 04 06 08 10 12 14 16 18 20

Western Europe North America

Middle East Latin America

Eas tern Europe&F SU Aus tralas ia

Asia Africa

(units)

FF F FF

- Shell has already placed an order for a large-sized LNG FPSO and is set to make a

second order. Several other major firms are also set to place orders in 2012 after

completing the FEED phase.

- The first-ever LNG FPSO (order was placed in 2011) will be delivered in September

2016. If LNG FPSOs are to be deployed during 2017~2019, orders need to be placed

during 2012~2013. We expect LNG FPSO orders of around 10 units over the next

three years.

- The three largest Korean shipbuilders are projected to receive LNG FPSO orders of

2~3 units in 2012. In our view, orders might exceed WestwoodÊs projections.

Source: Company data, Flex LNG, Korea Eximbank, Douglas Westwood, KDB Daewoo Securities Research

LNG FPSOs are a boon for the three largest Korean shipbuilders


Following SHI, DSME signed a design contract

with the Malaysian state oil company Petronas.

It is also in negotiations with Noble Energy on

building an LNG FPSO for IsraelÊs Tamaroffshore gas field project. Negotiations for

other LNG specialty ships are also underway.

„

‰

Current status of LNG-FPSO projects

Global outlook of LNG FPSO deployment

Production facilities [LNG FPSOs]: A new frontier

LNG-FPSO

„The first-ever LNGFPSO order wasawarded to SamsungHeavy Industries and willbe delivered inSeptember 2016.„

Concept270SMR2.0DFLNG

FEEDLummus C1-N23.0PNGStudiesAPCI DMR2.7Pechora LNGFEEDN2 or MR2.7Petrobras

ConceptTurbo Expander2.0Proteus LNGConcept160Costain Dual N21.5Sevan MarineConcept200Optimized Cascade5.3ConocoPhillipsConcept350MR0.4~1.5TGE MarineStudies270N2 or MR1.0~2.5SaipemConceptB&V PRICO1.02.0Exmar/ExcelerateConceptMustang N20.5~1.0TeekayStudiesN2 or MR0.5~2.2Hamworthy

Concept165~180Mustang NDX1.0~2.0BW OffshoreConceptN2 or MRBluewaterFEED160~200MR5.8Aker Kvaerner

Feasibility230MR4.5InpexGeneric FEED190Lummus C1-N21.6~2.0HoeghGeneric FEED230Linde MFCP2.5SBM Offshore

FEED436Shell DMR3.5ShellEPC220Costaim Dual N21.7Flex LNG

Statustorage

(x1000m3)iquefaction

apacity(mtpa)

roject



Shipbuilding 24

- Even though the large-sized FPSO market is dominated by the three largest Korean

shipbuilders, only 37% of related equipment is domestically produced. While Korean

suppliers dominate the hull segment, most shipbuilders pay royalties or rely on imports

for topside and subsea parts and equipment.

- The three largest Korean shipbuilders are developing the technology to venture into

those markets. Winning contracts for the complete package of offshore plants and

domestically sourcing equipment would help them sharply improve their order value

and margins. This explains why they are actively investing in R&D for offshore plants.


36.9% of FPSO equipment is domestically produced

IV. Conclusion: Finding the answer offshore[Topside & subsea parts] Creating added value from offshore & onshore plants

Topside & subsea parts

- The topside of a FPSO is basically a compact-sized onshore plant placed on top of a

ship. Thus, the more experience in building onshore plants, the better. Major Korean

companies are forming joint ventures with engineering companies to expand theirpresence in the onshore plant market.

- One LNG FPSO order was awarded to a consortium between a major Koreanshipbuilder (which lacks technology in the topside and subsea fields) and the Frenchengineering firm Technip. Developing advanced technologies is essential to createadded value and preserve the global status of Korean shipbuilders.

Eyes set on onshore plant market



Shipbuilding 25

- In 2011, total order growth was driven by a surge in orders for mega containerships,

LNG carriers and offshore plant vessels (e.g. drillships).

- In 2012, we expect merchant ship orders to drop, but non-shipbuilding orders to

remain flat YoY. Orders for LNG carriers should remain robust, but containership

orders are expected to plunge and tanker and bulk carrier orders should remain

sluggish. We expect strong orders for offshore plants on the diversification of vessels.

- We expect stable cash flows, backed by solid orders.

Source: Company data, KDB Daewoo Securities Research

Orders and cash flows to remain stable in 2012

V. Investment strategy & valuation: Overweight large caps

Order trends and outlooks of the Big 3 shipbuilders

Cash flow trends and outlooks of the Big 3 shipbuilders

- In 2011, drillships became the leading vessel in the offshore plant segment, with

orders hitting a record high. We also saw new vessels, like LNG FPSOs and LNG

FSRUs, win their first orders (1 unit and 4 units, respectively, excluding options).

- In 2012, we expect the offshore plant segment to remain healthy on the diversification

of vessels. Drillship orders should decline YoY, but LNG FPSO orders are expected to

increase to 2~3 units and LNG FSRU orders (including existing options) should double

YoY.

- Another new vessel type, LNG FPGU, will be unveiled next year. Demand for LNG

specialty ships is growing in several advanced countries.

Solid offshore orders supported by diversified vessels

Stable cash flow to continue from robust non-shipbuilding orders

0

10,000

20,000

30,000

40,000

50,000

60,000

70,000

03 04 05 06 07 08 09 10 11F 12F

Non-shipbuilding

Shipbuilding

(Wbn)

-5,000

-4,000

-3,000

-2,000

-1,000

0

1,000

2,000

3,000

4,000

05 06 07 08 09 10 11F 12F 13F

HHI

SHIHMD

(Wbn)



Shipbuilding 26

- The figure on the left illustrates the ROE and P/B bands for KoreaÊs three largest

shipbuilders and their share performances. In 2012, their earnings are expected to

remain flat with lower ROEs. Thus, earnings momentum is projected to be weak.

- Despite a YoY decline in orders and earnings, cash flows are anticipated to remain stable in

2012 thanks to the robust absolute level of orders. Thus, a P/B-based valuation is more

appropriate than a P/E-based or an EV/EBITDA-based valuation.

- We advise investors to trade at a P/B of 1.3~1.8x, and to accumulate shares when the P/Bapproaches 1.2x. With the dissipation of the eurozone crisis, the P/B is likely to near the upper-

end of the P/B band.


Advise trading at P/B of 1.3~1.8x

V. Investment strategy & valuation

ROE, P/B and avg. share price of the Big 3 shipbuilders

P/B and avg. share price of the Big 3 shipbuilders

- The shipbuilding industry slowed down in the wake of the Lehman crisis. The

deterioration peaked at end-September 2009, when CMA CGM (the worldÊs second-

largest container shipper) cancelled orders on a large scale. At that time, shares of

most domestic shipbuilders tumbled sharply and their average P/B hit 1.2x .

- When the stock market tumbled at the height of the eurozone crisis at end-September,

domestic shipbuildersÊ shares plunged and their average P/B fell to 1.2x.

- During the past two global stock market crashes, shares of KoreaÊs three largest shipbuilders

rebounded after their average P/B fell to 1.2x.

P/B of 1.2x represents bottom

Accumulate shares as P/B approaches 1.2x

0

30

60

90

05 06 07 08 09 10 11 12

0

9

18

27

36

45Avg. market cap of the three largest shipmakers (L)

Avg. ROE of the three largest shipmakers (R)

(%)(market cap, W)

1.0x

2.0x

3.0x

4.0x

P/B 1.2x P/B 1.8x

0.0

2.0

4.0

6.0

8.0

05 06 07 08 09 10 11

0

400

800

1,200

1,600

Avg. P/B of the three largest shipmakers (L)

Avg. share price of the three largest shipmakers (R)

(1/31/2005=100)(x)

F

P/B 1.2x



Shipbuilding 27

- Despite superior capabilities, Korean shipbuildersÊ shares are undervalued. In addition, their

shares are volatile as they are more sensitive to the eurozone crisis and economic fluctuations.

The shares of the three largest Korean shipbuilders should get a boost from new order growth

starting in early-2012.

- P/B-ROE comparison illustrates that Korean shipbuilders are undervalued relative to their

foreign peers.

- Large Korean shipbuilders have outperformed their foreign and mid- to small-sizedpeers.

Source: Thomson Reuters, KDB Daewoo Securities Research

Valuation comparison


ROE-P/B of the Big 3 domestic shipbuilders vs. global peers

Share performances of major domestic shipbuilders and global peers

Peer group valuations

Korean shipbuilders are the most undervalued

P/E P/B ROE EV/EBITDA

11F 12F 11F 12F 11F 12F 11F 12F

HHI 8.0 6.8 1.3 1.1 16.9 17.3 5.7 5.3

SHI 6.5 6.4 1.4 1.2 24.2 19.7 5.5 5.8

DSME 6.8 7.1 1.0 0.9 15.4 12.8 4.4 5.1

HMD 5.7 6.3 0.5 0.5 9.0 7.8 2.4 2.4

HHIC NA 23.3 0.5 0.5 -5.6 2.1 19.9 13.2

Mitsui 6.5 7.5 0.5 0.5 8.5 5.3 41.2 42.3

Sumitomo 8.7 8.2 0.9 0.8 10.7 10.7 53.1 51.8

Mitsubishi 24.6 17.0 0.8 0.8 3.3 4.6 66.8 60.4

Guangzhou 15.8 14.6 2.6 2.2 16.9 16.9 11.2 12.8

CSSC 13.0 12.2 1.6 1.5 15.6 14.4 9.2 8.2

SembCorp Marine 11.7 12.4 3.0 2.7 26.6 23.3 5.8 5.7

Keppel 11.2 10.6 2.0 1.8 19.6 18.4 6.8 6.2

H M D

S H IH H I

Keppel

Sembcorp

CSSC

Guangzhou

Shipyard

Mitsubishi HI

Sumimoto HI

0

1

2

3

4

0 10 20 30

(P/B, x)

(ROE, %)

40

80

120

160

12/10 2/11 4/11 6/11 8/11 10/11 12/11

HHI

SHI

HMD

CSSC

Mitsui E&S

(-1Y=100)



Shipbuilding 28


Low-priced orders to be completed in 2012


Earnings trend and forecasts of the Big 3 shipbuilders

Non-shipbuilding orders of the Big 3 shipbuilders Shipbuilding orders of the Big 3 shipbuilders Debt ratio trend of the Big 3 shipbuilders

Despite top-line growth, profitability to weaken

- Profitability is expected to weaken from 2H11 through

2012 due to an increase in construction of low-priced

vessels (ordered during 2009~1H10).

- However, profitability is expected to recover starting in

2H12 based on orders for mega-scale vessels and large

offshore plants received from 2H10. Shipbuilders are likely

to display stable profitability in 2013.

- Non-shipbuilding orders are expected to stabilize, but

shipbuilding orders are expected to slow down.

- Shipbuilders will maintain stable financial structures.

0

10,000

20,000

30,000

40,000

50,000

03 04 05 06 07 08 09 10 11F 12F

Shipbuilding

(Wbn)

0

10,000

20,000

30,000

40,000

03 04 05 06 07 08 09 10 11F 12F

Non-shipbuilding

(Wbn)

0

10,000

20,000

30,000

40,000

50,000

60,000

06 07 08 09 10 11F 12F 13F

(Wbn)

5

7

9

11

13

15Revenues (L)

OP margin (R)

(%)

0

300

600

900

1,200

05 06 07 08 09 10 11F 12F

HHISHI

HMD

(%)





Shipbuilding 30


Earnings forecasts of Hyundai Heavy Industries

Revenue breakdown by division Order breakdown by division Operating profit breakdown by division

Orders by division in 2011

0

7,000

14,000

21,000

28,000

35,000

06 07 08 09 10 11F 12F 13F

(Wbn)

6

9

12

15

18Revenues (L)

OP margin (R)

(%)

0

5

10

15

20

25

30

04 05 06 07 08 09 10 11F 12F

Shipbuilding Offshore

Plant Engine

Electric Const ruction equipmentOthers

(Wtr)

-1

0

1

2

3

4

5

04 05 06 07 08 09 10 11F 12F

Shipbuilding Offshore

Plant Engine

Electric Construction equipment

Others

(Wtr)

Shipbuilding

(incl.

drillships)

35%

Electric

12%

Offshore

17%

Construction

equipment

9%

Engine

16%

Plant

11%

0

5

10

15

20

25

30

04 05 06 07 08 09 10 11F 12F

Shipbuilding(incl. drillships) OffshorePlant Engine

Electric Construction equipment

(US$bn)

Investment points



Shipbuilding 31

Note: Non-consolidated K-IFRS basis; NP refers to net profit attributable to controlling interests; Used closing price on December 15, 2011


Comprehensive income statement (summarized) Balance sheet (summarized)

Hyundai Heavy Industries (009540 KS)

12/10 12/11F 12/12F 12/13F

22,405 25,291 27,958 31,469

17,735 21,067 23,597 26,182

4,670 4,224 4,362 5,287

1,231 1,290 1,426 1,605

3,439 2,934 2,936 3,682

3,439 2,934 2,936 3,6821,345 190 254 185

-82 -58 -134 -165

1,236 0 0 0

4,784 3,124 3,190 3,867

1,023 682 734 889

3,761 2,442 2,456 2,977

0 0 0 03,761 2,442 2,456 2,977

3,761 2,442 2,456 2,977

0 0 0 0

3,761 2,638 2,652 3,174

3,761 2,638 2,652 3,174

0 0 0 0

3,932 3,303 3,323 4,081258 1,437 2,139 2,805

17.6 13.1 11.9 13.0

15.4 11.6 10.5 11.7

16.8 9.7 8.8 9.5

(Wbn)

Operating Profit

Revenues

Cost of Sales

Gross Profit

SG&A Expenses

Operating Profit (Adj)

Total Comprehensive Profit

Controlling Interests

Non-Operating Profit

Net Financial Income

Net Gain from Inv in Associates

Pretax Profit

Income Tax

Profit from Continuing Operations

Profit from Discontinued OperationsNet Profit


Non-Controlling Interests


EBITDAFCF (Free Cash Flow)

EBITDA Margin (%)

Operating Profit Margin (%)

Net Profit Margin (%)

12/10 12/11F 12/12F 12/13F

10,867 20,033 21,753 24,627

625 8,483 9,778 11,777

6,077 6,945 7,074 7,521

2,084 2,353 2,488 2,706

1,178 1,517 1,678 1,888

18,022 12,109 12,611 13,0817,451 813 813 813

8,000 8,320 8,451 8,621

306 373 380 386

28,888 32,142 34,363 37,709

13,377 15,340 15,621 16,204

2,132 8,245 8,332 9,378

3,882 4,688 4,488 3,9887,363 2,408 2,801 2,839

1,692 1,520 1,237 1,255

536 335 45 45

1,063 1,092 1,099 1,117

15,069 16,860 16,858 17,459

13,819 15,282 17,505 20,250

380 380 380 3802,954 1,045 1,045 1,045

10,053 14,392 16,420 18,968

0 0 0 0

13,819 15,282 17,505 20,250tockholders' Equity


Capital StockCapital Surplus

Non-Cu rrent Liabilit ies

Long-Term Financial Liabilities

Other Non-Current Liabilities

Total Liabilit ies


Retained Earnings

AP & Other Payables

Short-Term Financial LiabilitiesOther Current Liabilities

Cash and Cash Equivalents

AR & Other Receivables

Total Assets

Current Liab ilities

Investments in Associates

Property, Plant and Equipment

Current Assets

Non-Current Assets

Intangible Assets

Inventories

(Wbn)

Other Current Assets



Shipbuilding 32

Note: Non-consolidated K-IFRS basis; NP refers to net profit attributable to controlling interests; Used closing price on December 15, 2011


Cash flows (summarized) Forecasts/valuations (summarized)

Hyundai Heavy Industries (009540 KS)

12/10 12/11F 12/12F 12/13F

1,527 2,465 2,605 3,338

3,761 2,442 2,456 2,977

604 1,331 866 1,103

440 311 319 330

52 59 68 69

-1,323 -353 150 50-2,838 -521 16 147

-1,403 -520 -129 -448

-156 71 -136 -218

564 196 87 1,046

0 -787 -734 -889

-3,887 5,303 -341 -365

-365 -748 -450 -500-70 -75 -75 -75

114 3 0 0

-3,566 6,122 184 210

2,352 85 -969 -974

2,564 638 -490 -500

0 0 0 0

-212 -429 -429 -4290 -124 -50 -45

-8 7,859 1,295 1,999

633 625 8,483 9,778

625 8,483 9,778 11,777Ending Balance

Net Profit

Cash Flow s from Op Activit ies

(Wbn)

Chg in Working Capital

Chg in AR & Other Receivables

Non-Cash Income and Expense

Depreciation

Amortization

Others

Chg in Equity

Dividends Paid

Chg in Inventories

Chg in AP & Other Payables

Income Tax Paid

Cash Flow s from Inv Activit ies

Chg in PP&EChg in Intangible Assets

Chg in Financial Assets

Others

Cash Flow s from Fin Activit ies

Chg in Financial Liabilities

Others

Increase (Decrease) in Cash

Beginning Balance

12/10 12/11F 12/12F 12/13F

9.0 8.2 8.1 6.7

7.9 7.1 7.0 5.9

2.5 1.3 1.2 1.0

9.3 4.8 4.2 2.8

49,489 32,128 32,317 39,177

55,965 36,986 37,408 44,426177,803 196,168 225,329 261,366

0 0 7,000 7,000

11.4 0.0 17.5 14.4

0.0 0.0 2.7 2.7

6.0 12.9 10.6 12.6

47.4 -16.0 0.6 22.8

54.8 -14.7 0.1 25.475.2 -35.1 0.6 21.2

4.1 4.0 4.1 4.5

11.2 11.4 11.6 12.1

13.4 5.1 3.5 3.7

14.0 8.0 7.4 8.3

31.8 16.8 15.0 15.8

37.1 25.8 24.2 30.1109.1 110.3 96.3 86.2

81.2 130.6 139.3 152.0

20.9 -27.5 -34.2 -41.9

42.8 26.6 58.4 81.2Interest Coverage Ratio (x)

Inventory Turnover (x)

Accounts Payable Turnover (x)

Net Debt to Equity Ratio (%)

Current Ratio (%)

ROIC (%)Liability to Equity Ratio (%)

ROA (%)

ROE (%)

EV/EBITDA (x)

EPS (W)

EPS Growth (%)

Accounts Receivable Turnover (x)

EBITDA Growth (%)

Operating Profit Growth (%)

Dividend Yield (%)

Revenue Growth (%)

DPS (W)

Payout ratio (%)

CFPS (W)BPS (W)

P/B (x)

P/CF (x)

P/E (x)





Shipbuilding 34


Earnings forecasts of Samsung Heavy Industries

Revenue breakdown by division Contribution to revenue by division Operating profit breakdown by division

Order backlogs by division in 2011

0

3,000

6,000

9,000

12,000

15,000

06 07 08 09 10 11F 12F 13F

(Wbn)

0

2

4

6

8

10Revenues (L)

OP margin (R)

(%)

0

3

6

9

12

15

06 07 08 09 10 11F 12F

ConstructionOffshoreCommercial vessels

(Wtr)

0

200

400

600

8001,000

1,200

1,400

06 07 08 09 10 11F 12F

Construction

OffshoreCommercial vessels

(Wbn)

Offshore

55%

Commercial

vessels37%

Construction

8%

Commercial

vessels

44%

Offshore

50%

Construction

6%

Investment points



Shipbuilding 35

Note: Consolidated K-IFRS basis; NP refers to net profit attributable to controlling interests;

Used closing price on December 15, 2011


Comprehensive income statement (summarized) Balance sheet (summarized)

Samsung Heavy Industries (010140 KS)

12/10 12/11F 12/12F 12/13F

13,090 13,676 14,294 15,522

11,623 11,857 12,579 13,365

1,466 1,819 1,715 2,158

418 702 733 796

1,049 1,117 982 1,361

1,049 1,205 982 1,361105 115 270 314

-17 -95 -144 -148

0 -30 11 11

1,153 1,232 1,252 1,675

265 323 275 369

888 910 977 1,307

0 0 0 0888 910 977 1,307

888 909 976 1,307

0 0 0 0

888 861 928 1,258

888 861 928 1,258

0 0 0 0

1,403 1,433 1,330 1,701518 2,317 877 1,213

10.7 10.5 9.3 11.0

8.0 8.8 6.9 8.8

6.8 6.7 6.8 8.4

(Wbn)

Operating Profit

Revenues

Cost of Sales

Gross Profit

SG&A Expenses

Operating Profit (Adj)

Total Comprehensive Profit


Non-Operating Profit

Net Financial Income

Net Gain from Inv in Associates

Pretax Profit

Income Tax

Profit from Continuing Operations

Profit from Discontinued OperationsNet Profit




EBITDAFCF (Free Cash Flow)

EBITDA Margin (%)

Operating Profit Margin (%)

Net Profit Margin (%)

12/10 12/11F 12/12F 12/13F

11,623 11,729 11,911 12,646

443 1,205 1,059 1,142

5,238 4,848 5,067 5,503

549 704 736 799

2,107 1,710 1,787 1,940

6,744 7,331 7,448 7,65938 4 14 25

5,054 5,471 5,442 5,435

152 105 96 88

18,366 19,060 19,358 20,306

12,397 12,655 12,244 12,518

1,671 4,240 4,431 4,812

4,575 4,039 3,239 2,7396,150 4,376 4,574 4,967

2,154 1,518 1,408 931

1,845 1,136 1,036 536

206 280 270 293

14,550 14,173 13,652 13,449

3,816 4,886 5,706 6,856

1,155 1,155 1,155 1,155499 423 423 423

2,558 3,808 4,677 5,875

0 1 1 1

3,816 4,887 5,707 6,857tockholders' Equity


Capital StockCapital Surplus

Non-Cu rrent Liabilit ies

Long-Term Financial Liabilities

Other Non-Current Liabilities

Total Liabilit ies


Retained Earnings

AP & Other Payables

Short-Term Financial LiabilitiesOther Current Liabilities

Cash and Cash Equivalents

AR & Other Receivables

Total Assets

Current Liabilit ies

Investments in Associates

Property, Plant and Equipment

Current Assets

Non-Current Assets

Intangible Assets

Inventories

(Wbn)

Other Current Assets



Shipbuilding 36

Note: Consolidated K-IFRS basis; NP refers to net profit attributable to controlling interests;

Used closing price on December 15, 2011


Cash flows (summarized) Forecasts/valuations (summarized)

Samsung Heavy Industries (010140 KS)

12/10 12/11F 12/12F 12/13F

1,035 2,564 1,127 1,469

888 910 977 1,307

456 573 353 395

333 292 329 323

22 23 19 18

-113 -65 140 140-309 1,591 73 136

-1,505 636 -219 -435

26 -97 -32 -63

440 55 192 381

0 -510 -275 -369

-731 -161 -204 -226

-393 -291 -300 -315-34 -10 -10 -10

-306 -37 0 0

2 176 106 100

-427 -1,638 -1,070 -1 ,159

-326 -1,432 -900 -1,000

3 1 0 0

-108 -108 -108 -1084 -99 -62 -51

-123 762 -147 84

566 443 1,205 1,059

443 1,205 1,059 1,142Ending Balance

Net Profit

Cash Flow s from Op Activit ies

(Wbn)

Chg in Working Capital

Chg in AR & Other Receivables

Non-Cash Income and Expense

Depreciation

Amortization

Others

Chg in Equity

Dividends Paid

Chg in Inventories

Chg in AP & Other Payables

Income Tax Paid

Cash Flow s from Inv Activit ies

Chg in PP&EChg in Intangible Assets

Chg in Financial Assets

Others

Cash Flow s from Fin Activit ies

Chg in Financial Liabilities

Others

Increase (Decrease) in Cash

Beginning Balance

12/10 12/11F 12/12F 12/13F

10.7 7.2 6.7 5.0

7.7 5.3 4.9 4.0

2.6 1.4 1.2 1.0

8.8 5.1 5.0 3.2

3,846 3,937 4,227 5,657

5,381 5,302 5,733 7,12915,888 20,722 24,310 29,321

0 0 0 0

12.2 0.0 11.1 8.3

0.0 0.0 0.0 0.0

-0.5 4.5 4.5 8.6

17.7 2.1 -7.2 28.0

21.5 14.9 -18.5 38.626.6 2.4 7.4 33.8

2.9 2.7 2.9 3.0

23.1 21.8 19.9 20.2

10.2 4.9 3.4 3.5

4.6 4.9 5.1 6.6

26.7 20.9 18.4 20.8

16.4 18.9 19.0 27.2381.3 290.0 239.2 196.1

93.8 92.7 97.3 101.0

70.5 14.5 -0.8 -16.5

5.9 15.6 15.8 26.5Interest Coverage Ratio (x)

Inventory Turnover (x)

Accounts Payable Turnover (x)

Net Debt to Equity Ratio (%)

Current Ratio (%)

ROIC (%)Liability to Equity Ratio (%)

ROA (%)

ROE (%)

EV/EBITDA (x)

EPS (W)

EPS Growth (%)

Accounts Receivable Turnover (x)

EBITDA Growth (%)

Operating Profit Growth (%)

Dividend Yield (%)

Revenue Growth (%)

DPS (W)

Payout ratio (%)

CFPS (W)BPS (W)

P/B (x)

P/CF (x)

P/E (x)

Documents

Shipbuilding Time to Change