Expectations are high that Hyundai Heavy Industries Co., South Korea’s largest and also the world’s top shipbuilder, would have returned to profit last year snapping losing streak for two straight years since 2014, thanks to its subsidiary Hyundai Oilbank Co.’s improved performance and labor cost cutting efforts despite poor sales of shipbuilding business.

According to market data provider FnGuide on Wednesday, Hyundai Heavy Industries was estimated to have recorded 1.62 trillion won ($1.35 billion) in operating profit on sales of 38.57 trillion won in 2016. Despite a 16.6 percent on-year fall in sales, its operating profit is expected to exceed 1 trillion won thanks to its subsidiary Hyundai Oilbank’s recovering refining margin and efforts to cut labor costs. Hyundai Heavy owned a 91.1 percent stake in Hyundai Oilbank as of the end of September last year.

Buoyed by such expectations, the company’s shares have soared 65 percent over the past year. On Wednesday, shares of Hyundai Heavy Industries rose 2.2 percent, or 3,000 won, to end at 142,000 won in Seoul trading.

Hyundai Oilbank’s refining business is expected to remain solid this year as the oil price is projected to maintain the price range of $55 to $60 per barrel this year. In addition, as Hyundai Heavy Industries saved about 700 billion won by cutting labor costs since July last year and its 250 billion won worth restructuring costs were all reflected to its last year’s income statement, market experts believe its earnings would significantly improve this year.

Hyundai Heavy’s efforts to split up its non-shipbuilding businesses to raise management efficiency would also pay off this year. The shipbuilder announced in December that it would separate its non-core businesses such as electric and electronics and construction equipment businesses into six independent entities. It also plans to list some of its separated businesses on the Korean bourse to raise corporate value. The restructuring is expected to improve efficiency in its important management decision making related to human resources, wage or investment.

Hyundai Heavy Industries’ corporate value is expected to improve as stocks for robotics, electric and electronics and construction tools businesses it plans to split up and list usually show high price to earnings ratio (PER).

By Park Yoon-gu

[ⓒ Pulse by Maeil Business News Korea & mk.co.kr, All rights reserved]