[Click e-Stock]"Hanwha Engine in an Expectations Reset Phase... Target Price Cut"

Third-quarter earnings expected to fall short of market expectations
Rapid growth in two- and four-stroke engines expected next year... "Buy" rating maintained

SK Securities cut its target price for Hanwha Engine to 75,000 won from 90,000 won on Oct. 15, saying the company's third-quarter earnings would fall short of market expectations. It maintained its "Buy" rating.

According to SK Securities, Hanwha Engine is estimated to have posted revenue of KRW 419.5 billion and operating profit of KRW 47.5 billion in the third quarter. These figures represent year-over-year increases of 41.1% and 78.2%, respectively, but operating profit is below the market consensus of KRW 58.9 billion.

"Hanwha Engine delivered a total of 31 engines in the third quarter: 17 for LNG carriers, four for container ships, and 10 for tankers. The increase in container-ship engine deliveries contributed to a higher average selling price (ASP)," said Han Seung-han, an analyst at SK Securities. "However, additional quarterly costs of about KRW 5 billion are expected to continue, consisting of approximately KRW 2.5 billion in SEAM PPA amortization expenses and KRW 2.5 billion in ESS R&D costs. As a result, earnings are expected to fall short of consensus."

SK Securities accordingly lowered its target price to 75,000 won but maintained its Buy rating. It said the current period represents a kind of "expectations reset," given that rapid growth is expected in both two-stroke and four-stroke engines starting next year.

In 2027, Hanwha Engine's capacity for two-stroke low-speed engines is expected to expand to 5.3 million horsepower, or 145 units annually, while deliveries of four-stroke medium-speed engines at full capacity, totaling 900 MW, will also contribute. In the fourth quarter alone, the number of engines scheduled for delivery is expected to decline, but the ASP is projected to rise by about 15% as container-ship deliveries increase.

Starting in the second quarter of 2027, quarterly container-ship engine deliveries are also expected to rise to double-digit numbers. In addition, starting in 2028, Hanwha Engine is expected to be able to deliver its main power-generation engines, in the 300-400 MW range, for North American AIDCs through companies in its group.

Han said, "The stock price does not yet fully reflect the momentum in land-based power-generation engines." Hanwha Engine shares stood at 39,850 won on Oct. 14.

"There have recently been concerns about engine capacity expansions in China, including by Hengli Group," he said. "However, these expansions are not expected to outpace the pace of yard expansion at Chinese shipyards in the near term or reach a level that would threaten Korean engine manufacturers."

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