HHI Ship Order Soar, But Profits Fall

HHI, the world's largest shipbuilder, expects profits to tumble from sister-company losses Korea's Hyundai Heavy Industries -- the world's largest shipbuilder -- said it expects this year's net profit to tumble as it had to write off losses stemming from its sister firms. "We expect this year's net profit to drop to about $134.5 million (150 billion won) from 323 billion won in 1999," President and CEO Cho Choong-hooy said. "We have to clean up losses in Hyundai Space and Aircraft and Aluminium of Korea this year. But our sales will be steady along with strong shipbuilding demand and operating profits will be similar to last year's 670 billion won," he added.

Hyundai Heavy had a 42.5 percent stake at Hyundai Space, which was liquidated earlier this year, and a 14.9 percent stake at Aluminium of Korea, which was sold in May to Alcan Aluminium. "We may have to take the bill worth more than 100 billion won from the two soured companies," Cho said.

But he said his company would be able to jack up its net profit to about 400 billion won in 2001 after cleaning up messes in the two ill-fated firms.

"Business conditions for our shipbuilding division, which now explains more than half of Hyundai Heavy's total sales revenues, are quite favorable," Cho said. "And we can be selective these days in picking up orders."

Hyundai Heavy received shipbuilding orders totaling $2.7 billion during the first half of this year and planned to add only $1.05 billion worth in the second half because the company had already secured work loads enough keep its yards busy at least for the next two years, Cho said. As of the end of June, the company had an order backlog of 140 ships, equivalent to about 10 million gt, with a combined contract value of $7.3 billion. In fiscal 1999, the shipbuilding division received orders of 63 ships totalling 4.7 million G/Ts worth $3.4 billion.

As for criticism that South Korean shipbuilding companies charge unfairly low prices, Cho said his company could maintain its competitive edge by increasing labor productivity. "Demand for double-hulled tankers is on the rise due to recent oil spills," said Cho. "Demand for larger container ships is also rising quite steadily from shipping companies which are keen on economies of scale."

Hyundai Heavy officials said they felt no need to charge low prices when demand was strong.