"Buy While It's Cheap... Hanwha Ocean's Canadian Order Failure Already Priced In" [Click e-Stock]

Order Rally Expected in Commercial Ships and Offshore Structures in the Second Half
Solid Q2 Results and Gains from Exchange Rates

An analysis suggests that Hanwha Ocean could stage a stock price rebound thanks to robust order momentum in the merchant ship segment and solid short-term earnings, even after its failure to secure the Canadian submarine project.

On July 15, Han Youngsoo, researcher at Samsung Securities, maintained a Buy recommendation for Hanwha Ocean but lowered the target price by 27.8%, from 180,000 won to 130,000 won. On this day, Hanwha Ocean's shares ended regular trading at 82,000 won, up 6.77% from the previous session.

"Order Intake to Concentrate in the Second Half After Underperformance in the First Half"

Recently, Hanwha Ocean fell short of becoming the preferred negotiator in Canada’s Next-Generation Submarine Procurement (CPSP) project, worth tens of trillions of won, losing out to Germany’s Thyssenkrupp Marine Systems (TKMS). On July 7, when news of the missed order broke, the share price plunged by over 20% during the session.

Regarding this, Han commented, “Shares have plummeted recently due to the failure to win the Canadian submarine project, but this negative impact is already priced in.” He stated, “Certainly, winning the contract would have facilitated further export orders. However, even if Hanwha Ocean had secured the Canadian submarine deal, its contribution to short-term revenue and profit may have been minimal.”

He further explained, “Order performance in the first half lagged behind competitors, but recent strong demand for vessels should not be overlooked.” He emphasized, “With multiple order projects concentrated in the second half—including liquefied natural gas (LNG) carriers—a strong ship order intake is expected.”

Additionally, “In the offshore segment, Hanwha Ocean is a strong candidate in tenders for major Floating Production Storage and Offloading (FPSO) projects. In the defense industry segment, the company is a leading candidate in the Royal Thai Navy’s frigate project. Success in these orders would ensure future earnings improvement driven by reduced fixed costs in both offshore and defense business areas.”

Formal contract signing for South Korea’s next-generation destroyer (KDDX) project—where Hanwha Ocean was recently selected as preferred negotiator—as well as news regarding shipbuilding cooperation with the United States, are also expected to provide further positive momentum for the stock in the future.

"Flexible FX Hedging... Maximizing Profits"

Hanwha Ocean is also expected to deliver short-term results in line with market expectations. Sales for the second quarter of 2024 are projected to reach 4.002 trillion won (up 21.5% year-on-year), with operating profit estimated at 542 billion won (up 45.7%). Annual sales for the current year are estimated at 13.728 trillion won, and operating profit at 1.836 trillion won.

Han explained, “Second quarter results are expected to be solid, matching the consistently upgraded market forecasts. Thanks to a flexible currency hedging policy, the merchant ship segment will benefit from currency effects, while one-off expenses reflected in the first quarter have now been resolved.”

He added, “The impact of failing to win the order is limited to eliminating the stock price premium Hanwha Ocean previously enjoyed over its competitors. Hanwha Ocean’s valuation is now at a level similar to its peers, and as it remains one of the world’s leading shipbuilders, there is little ground for further stock price discount.”

This content was produced with the assistance of AI translation services.