Who Is Going to Win in the Gas Turbine Industry?
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The shale gas boom has led to an emerging theme in the industrial goods space. Where some players have been hit by declining gas prices such as railroads, others have seen remarkable growth in their businesses. And in this list, the gas turbine industry must be mentioned. The following four companies have been the global leaders in this industry:
1) General Electric (NYSE: GE)
2) Siemens AG (NYSE: SI)
3) Mitsubishi Heavy Industries (NASDAQOTH: MHVYF) (M.H.I)
4) Alstom (NASDAQOTH:ALSMY)
It should be understood that though the US provides a healthy market for gas turbines, the global demand for this product is extremely weak.
Following the release of market share data and overall order intake for FY12, as well as commentary from various power generation equipment vendors over the recent earnings season, the following is a quick update on trends within the industrial gas turbine sector:
Orders were close to 2009 lows, but the US and South Korea were bright spots: Both the McCoy data and the Power Generation Vendor Data highlight how weak 2012 was for thermal power order intake, although the trends were less negative in the second half. Gas turbine unit orders / MW orders were down -8% / -13% respectively (compared with -45% / -41% respectively in the 1H12). Of the major markets, all were down double-digits in 2012 except for South Korea (the #4 market in 2012) and the US, where MW orders were up +43% / +11% respectively.
The largest market was again China, with 16% of the global total (in-line with 2011), and with the US at #2; GE recently highlighted that their US IGT (Industrial gas turbine) order intake last year was the highest in a decade. In the EMEA region, Saudi Arabia, Russia and Algeria were major markets, ranked #3 / #5 / #6 respectively on a global basis. The #7 market Japan showed gas is not winning share despite the Fukushima accident, with orders down -41% from 2011.
Pricing: Commentary from power gen OEMs suggests pricing remains subdued, although at least GE's pricing has turned positive.
Market share - MHI above trend, Siemens below trend, GE rebounds: GE’s market share showed a decent increase from 39.8% to 42.8% y-o-y (although orders were still down -23% y-o-y), and was in-line with its 5-year average; share was helped by a rebounding US market (GE had 48.6% share in an up market). Mitsubishi Heavy Industries also put in a strong performance (global share moved up 400bps to 18.1%, vs. a 5-year average of 11.5%), helped by its South Korea position (59% share in an up market) and 52% share in China. This came mostly at the expense of Siemens (it saw a -39% drop in orders, and share was >300bps below its 5-year average), whose share was down to 27.7% from 32.6% in 2011. Alstom’s share remained at a low-mid single digit level.
Two Stocks: It is encouraging to see that trends appeared to stabilize at year-end, and the comps are pretty easy for 2013. The Street believes that the data confirms the view that GE is well-placed to take market share in its industrial businesses this cycle as a result of higher R&D spending and the Global Growth initiative, and less focus on GE Capital / NBCU; the forecast of a -30% drop in its Gas Turbine shipments this year should capture last year's order softness. For MHI, the weakening Japanese yen and its new US plant suggest further share gains are likely.
Foolish Bottom Line
One can infer from the article that GE is definitely at the top of the ladder in this segment and is expected to continue this momentum in the near future.
AnalystX has no position in any stocks mentioned. The Motley Fool owns shares of General Electric Company. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!