[Click e-Stock] "Hanwha Ocean: Fourth Quarter Won't Be Easy Either... Target Price Cut"

SK Securities lowered its target price for Hanwha Ocean from KRW 110,000 to KRW 90,000, citing third-quarter results that fell short of expectations and an outlook that the fourth quarter would also be challenging. It recommended taking a cautious approach until the MASGA momentum becomes more tangible.

According to SK Securities on October 28, Hanwha Ocean posted consolidated third-quarter revenue of KRW 3.4139 trillion and operating profit of KRW 485.7 billion. These figures were up 12.9% and 67.6%, respectively, from a year earlier, but down 37.3% and 34%, respectively, from the previous quarter. Han Seung-han, an analyst at SK Securities, said, "Results fell short of the market consensus of KRW 532 billion. Revenue was affected by a nine-day reduction in operating days and the base effect from P79 FPSO revenue being temporarily recognized on a delivery basis in the previous quarter, while operating profit was affected by fewer operating days and a decline in the exchange rate."

The fixed-cost burden in the offshore business is expected to persist in the fourth quarter, alongside an expanded share of low-margin domestic projects in the special-purpose ship segment and the resulting fixed-cost burden. Han said, "The fourth quarter will also be challenging. Merchant ships alone are not enough. The company needs orders for offshore projects and naval vessels, as well as a resolution of uncertainty over its future results." He also noted that including one-off factors such as payments from the labor-management wage negotiations and performance bonuses would inevitably limit growth in the company-wide OPM (operating profit margin).

Han said, "We lowered our valuation multiple to reflect China's recent aggressive capacity expansion and the resulting concerns that the merchant ship segment of shipbuilding stocks may have peaked. We also lowered our order outlook for the offshore and special-purpose ship segments, as well as our estimates for future results, compared with our previous forecasts." The new target price of KRW 90,000 is based on estimated 2028 earnings per share (EPS) of KRW 6,663 and a target price-to-earnings ratio of 13. Hanwha Ocean shares closed at KRW 53,000 on October 27.

However, the analyst maintained a "Buy" rating. Han said, "We believe the company is likely to win orders for the relevant vessels following the U.S. Navy's approval for the first two frigates and logistics support vessels to be built overseas. If it wins the orders, its shares could be re-rated."

He added, "Even excluding the United States, we can look forward to a final contract for a Thai frigate by the end of this year, followed from next year by orders for naval vessels in the pipelines of major countries around the world, including Greece, Estonia, Saudi Arabia and Egypt. We believe the time to actively 'buy' will come when the MASGA momentum becomes tangible; until then, a cautious approach is warranted."

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