Shipbuilder Market Values: Once In A Career Short Opportunity
- Mature, Cyclical Industry: Shipbuilding is a mature, highly cyclical industry. While the ships have evolved over the years, the nature of the market has not.
- Valuation Bubble: The enterprise value for the four largest South Korean shipbuilders increased over 4x from 2005 to today’s levels, passing a 7x increase along the way. In mature, cyclical industries, that alone is a significant warning sign. Samsung Heavy is up 700%-800% from its 1 average share price. Our cyclically adjusted valuation suggests significant downside from current levels.
- Falling Utilization: As deliveries drop steadily in coming years, shipyards will face headwinds not only from reduced capacity utilization, but also from intense price competition and low customer profitability.
- Once in a Career Opportunity: Shorting the shipbuilders is an opportunity that only comes around once every 30 years or so. Assuming our readers retire at a reasonable age, this may be their only opportunity to participate in one of the great capital equipment cycles.
- 2035 to 2042: For speculators who are still trading cyclicals in a few decades, 2035 should be a good buying opportunity for shipyards (most likely Chinese shipyards), when the next replacement cycle is likely to begin.
Long-term View Suggests Short Opportunity
