Should It Build an Aircraft Carrier? ... 'This Company' Stumbles After a Strong Run [Weekend Money]

Hanwha Ocean Awaits "Warship Orders" as Earnings Slow
Third-Quarter Operating Profit Forecast at 509 Billion Won, Down 30% QoQ
Fewer Workdays and Exchange-Rate Headwinds Weigh; Special-Purpose Vessel and Offshore Orders Key Variables

A shipbuilder's report card reflects orders it received several years ago. How efficiently it builds ships contracted at high prices determines its near-term profits. Its share price, by contrast, also responds to what kinds of ships it may win orders for in the future. This is where views on Hanwha Ocean diverge. Analysts say its third-quarter results may fall short of expectations, but the possibility of winning new orders for special-purpose vessels, including warships, remains worth watching.

Against this backdrop, DB Securities maintained its target price of 110,000 won for Hanwha Ocean and its "Buy" rating. DB Securities forecasts third-quarter revenue of 3.326 trillion won and operating profit of 509 billion won. These figures represent increases of 10.0% and 75.6%, respectively, from the same period a year earlier. However, they would mark a decline from the previous quarter. The brokerage expects revenue to fall 38.9% and operating profit to drop 30.9% from the second quarter, which is why the results are expected to come in below market expectations.

DB Securities cited fewer shipbuilding workdays as a major reason for the expected slowdown. The third quarter had nine fewer working days than the previous quarter. In addition, a decline in the won-dollar exchange rate and a change in the mix of vessels under construction weighed on profitability in the merchant ship division. The share of high-margin liquefied natural gas (LNG) carriers is estimated to have fallen somewhat, while the shares of container ships and very large crude carriers increased. As a result, the merchant ship division's operating margin is expected to decline from 22.7% in the second quarter to 17.3% in the third.

DB Securities, however, does not believe that a pause in one quarter will derail the long-term trend of improving profits. Contract prices for LNG carriers now under construction are gradually rising. DB Securities estimates that the contract price of LNG carriers entering production will increase from $230 million (about 309.3 billion won) in the first quarter to $246 million in the fourth quarter.

Hanwha Ocean is also continuing to benefit from greater work efficiency as it builds similar vessels repeatedly. Seo Jae-ho, a researcher at DB Securities, expects the company's earnings growth trend to continue through 2028, supported by these developments.

Special-purpose vessels are the business segment that could add new upside expectations for the share price. The United States has opened the door to allowing some warships to be built overseas on a limited basis, subject to conditions including investment in U.S. shipyards and workforce training. Hanwha Ocean has secured a local production base after acquiring Philly Shipyard in the United States together with Hanwha Systems. DB Securities believes this investment could increase the likelihood of winning U.S. naval shipbuilding orders.

There are also potential orders in the offshore business. The report identified securing an order by the end of 2026 for one floating production, storage and offloading (FPSO) unit for Namibia's Venus project as a target. The project is worth about $3 billion. An FPSO is a facility that produces and stores crude oil at sea before transferring it to another vessel. Winning the order is expected to help secure work for the offshore division.

Researcher Seo said, "While there are concerns that competition with Chinese shipyards could drive down prices in the merchant ship division, a revaluation of the share price could be possible based on the special-purpose vessel division."

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