Shipbuilder diversifying for growth

STRATEGIC SHIFT::CSBC is expanding into government contracts for military vessels and marine constructions for wind farms, which it says offer higher gross margins

By Kao Shih-ching  /  Staff reporter

Sat, Sep 29, 2018 - Page 12

CSBC Corp, Taiwan (台灣國際造船) yesterday unveiled its transition plan, with marine constructions for wind farms, government contracts for military vessels and container shipbuilding expected to account for a third each of its annual revenue by 2025.

The nation’s only listed shipbuilder currently derives about 80 percent of its revenue from building container ships, but that makes it vulnerable to cyclical changes, CSBC chairman Cheng Wen-lon (鄭文隆) said at an investors’ conference in Taipei.

Gross margins on container shipbuilding averaged 3 percent in recent years, which is lower than the 10 percent offered by government contracts for military vessels and the 10 to 15 percent for wind farm-related projects, Cheng said.

As CSBC has found it increasingly difficult to make profits from its container ship business, it is reducing its focus on this front and diversifying into other areas, he said.

Describing the shipbuilding industry’s situation as “miserable,” Cheng said that about 60 percent of the world’s shipbuilders have shut down their businesses over the past 10 years, as prices continued to plunge.

As CSBC moves to diversify its business, it has seen rising orders for military vessels from the Ministry of National Defense, with total orders reaching NT$17.88 billion (US$585.3 million) as of last month, compared with NT$15.44 billion for container ships, Cheng said.

Last year, military vessels contributed a mere 1.35 percent to CSBC’s total revenue, but the ratio jumped to 9.86 percent last month and is expected to rise further to more than 25 percent in the next two years, the company said.

In addition, the company is confident about taking part in the government’s indigenous submarine fleet project, for which it has allocated a budget of NT$470 billion, CSBC president Tseng Kuo-cheng (曾國正) said.

The company is also anticipating long-term revenue from marine constructions for offshore wind farms, Tseng said.

However, as a majority of the offshore wind farm projects are scheduled to start construction after 2023, revenue contribution from this front would increase more slowly compared with its military vessel business, he said.

CSBC-DEME Wind Engineering Co (台船環海風電工程), a joint venture between CSBC and Belgian marine engineering company GeoSea NV, is to be set up in November, Tseng said, adding that it would start producing pin piles and transition pieces next year.

CSBC reported that net losses narrowed to NT$1.19 billion in the first half of this year, compared with losses of NT$2.65 billion a year earlier.

Revenue during the same period dropped 28.05 percent annually to NT$6.27 billion, company data showed.

With losses contracting, the company should be able to turn around its business in the next two years, Tseng said.

CSBC shares closed 6.79 percent lower at NT$39.80 yesterday in Taipei trading. They have surged 252.21 percent so far this year, Taiwan Stock Exchange data showed.