20160601-三星证券-Little_impact_from_shipbuilder_shipper_restructuring_33页_792kb

Sector Update Summary

Core Content

This document provides an analysis of the impact of corporate restructuring on the Korean banking sector, particularly focusing on shipbuilders and shippers. It outlines the government's restructuring plan, the current status of restructuring in the shipbuilding and shipping industries, and the implications for banks. The report also recommends a trading-buy approach for the banking sector due to restructuring-driven weaknesses, with KB Financial Group as the top pick.

Main Points

• Government's Restructuring Plan: The Korean government introduced a three-track restructuring plan. Shipbuilders and shippers are on track 1, while large corporate groups and steel/petrochemical sectors are on tracks 2 and 3, respectively.
• Impact on Banks: The restructuring of shipbuilders and shippers is expected to have limited impact on banks' earnings due to conservative provisioning and the potential for charter rate cuts.
• Restructuring in Shipbuilding: Mid-sized shipbuilders like STX Offshore & Shipbuilding (STX O&S) and SPP Shipbuilding are under restructuring, while smaller players have mostly ceased operations or gone bankrupt. The Big 3 shipbuilders (Hyundai Heavy Industries, Samsung Heavy Industries, and Daewoo Shipbuilding & Marine Engineering) have submitted self-rescue plans to creditors.
• Restructuring in Shipping: The restructuring of mid-sized and small shippers has already been completed or is ongoing. Hyundai Merchant Marine (HMM) and Hanjin Shipping (HJS) are the main focus of restructuring, with significant chartered portions of their fleets.
• Case Studies:
  • Zim Integrated Shipping Services (ZIM): Successfully restructured in 2014 with a charter rate cut, leading to improved financial performance.
  • SM Korea Lines: Restructured from 2011-2013, reducing its debt-to-equity ratio and shifting business focus to long-term contracts.
  • STX O&S and SPPS: These shipbuilders are undergoing restructuring, which could affect bank provisioning.

Key Information

Shipbuilders

• Government Measures: State-owned banks will bolster capital, shipbuilders will issue P-CBOs and reschedule debt, and the government will support employment.
• Mid-sized Shipbuilders:
  • STX O&S is under court receivership and has reduced staff and focused on specific vessel types.
  • SPP Shipbuilding has sold off divisions and is in the process of selling its Sacheon shipyard.
  • Daesun Shipbuilding has focused on smaller vessels and liquidated its larger plants.
• Smaller Shipbuilders: Most have ceased operations or gone bankrupt, with notable examples like 21st Century Shipbuilding and Shina SB.
• Big 3 Shipbuilders:
  • HHI plans to lay off 3,000 employees and reduce costs.
  • SHI plans to sell assets to raise KRW1.8t.
  • DSME plans to spin off and list its defense business and sell shares in its Chinese subsidiary to raise KRW2t.

Shippers

• Restructuring Focus: HMM and HJS are the main targets for restructuring due to high charter portions and financial struggles.
• Charter Rate Cuts: Essential for improving financial health and ensuring survival. HMM and HJS have already paid significant amounts to ship owners for such cuts.
• Global Shipping Alliances: A reshuffle in April left three major alliances, with HJS joining The Alliance and HMM possibly joining Ocean to improve bargaining power.
• Case Studies:
  • ZIM: Reduced debt significantly after restructuring, with a 45% share of Danaos' charter-rate income.
  • SM Korea Lines: Restructured by reducing chartered vessels and shifting to long-term contracts, leading to improved financial performance.
  • STX O&S and SPPS: Restructuring efforts may impact bank provisioning, with creditors converting debt into ownership.

Recommendations

• The report recommends a trading-buy approach for the banking sector due to restructuring-driven weaknesses.
• KB Financial Group is highlighted as the top pick for investment.
• 2Q Earnings: Expected to exceed most forecasts, despite the restructuring challenges.

Summary Table