Hanwha Ocean stocks fell 22.65% to 89,800 won on the 7th after losing Canada's submarine contract bid. Canada selected Germany's ThyssenKrupp Marine Systems (TKMS) as the preferred bidder for the Canadian Patrol Submarine Project (CPSP) on the 6th (local time). The stock decline returned Hanwha Ocean's share price to levels similar to July 25 last year, before South Korea's government proposed the Korea-US shipbuilding cooperation project MASGA (Making American Shipbuilding Great Again) to the United States. The CPSP project, designed to replace Canada's aging submarines, was estimated at 60 trillion won in total value including construction of 12 submarines and over 30 years of maintenance, repair, and operations (MRO).
Hanwha Ocean Stocks Return to Pre-MASGA Levels Following CPSP Bid Loss
According to the Korea Exchange, Hanwha Ocean closed trading at 89,800 won on the previous day, down 22.65%. Canadian Prime Minister Mark Carney announced on the 6th (local time) that TKMS was selected as the preferred negotiator for CPSP. The stock price following the anticipated CPSP contract loss is similar to the closing price on July 25 last year (90,000 won). July 25 (local time) last year was when Kim Jung-kwan, Minister of Trade, Industry and Energy, proposed MASGA to Howard Lutnick, US Secretary of Commerce, in New York.
MASGA is a Korea-US shipbuilding cooperation initiative where South Korea's shipbuilding industry supports the reconstruction of America's shipbuilding industry. Hanwha Ocean had been building a foundation for US local operations, including acquiring the Philly Shipyard in Philadelphia before MASGA was proposed, leading to expectations of concentrated benefits from the MASGA project.
Analysts Identify Stock Decline as Buying Opportunity
Kim Yong-min, a researcher at Yuanta Securities, stated in a report published on the 6th before TKMS's selection as preferred negotiator was announced, "If TKMS's contract is confirmed and Hanwha Ocean's stock price falls in the short term, it will be an opportunity for low-price buying."
Lee Dong-heon, a researcher at Shinhan Investment & Securities, explained after the CPSP preferred negotiator selection results were announced, "Hanwha Ocean's stock price inevitably retraced by the amount that had pre-reflected expectations for winning the CPSP project," adding "the decline due to the event's disappearance is a supply and demand issue, not fundamental damage."
He added, "The value of the CPSP project was an option that was not reflected in existing valuation (stock price level relative to performance) calculations." This means Hanwha Ocean's performance estimates do not change due to the CPSP contract failure. However, there is a possibility that the valuation multiples used in calculating target prices may be lowered due to the disappearance of expectations.
Securities firms advised that since the possibility of winning the CPSP contract was not reflected in calculating Hanwha Ocean's target stock price, the stock price adjustment due to this contract loss could be taken as a "low-price buying" opportunity.
Hanwha Ocean Retains Backup Negotiation Rights in CPSP Project
Although Hanwha Ocean did not win the CPSP project, the company gained valuable experience. The company built a track record of fierce competition against Germany, which is tied to Canada through the North Atlantic Treaty Organization (NATO). Prime Minister Carney stated that both TKMS and Hanwha Ocean met operational requirements, and that Hanwha Ocean retains the right to negotiate if contract negotiations with TKMS break down.
Yang Seung-yoon, a researcher at Eugene Investment & Securities, said, "It is positive that through this competition, Korean companies demonstrated internally and externally that they are operators who can compete on equal footing with Germany, the strongest player in submarine construction," adding "the fact that Germany mobilized offset trade offensives, delivery modifications, and even negative messages at the end of the competition proves that Korea's proposal was highly competitive."
TKMS led with mutual operability among NATO member countries, trilateral cooperation between Germany, Norway, and Canada in the North Atlantic, and solidarity in European defense supply chains during this bidding war. The company also advanced the delivery schedule by yielding some construction slots for submarines already contracted with Norway and its own country.
Lee Dong-heon, a researcher, predicted, "Hanwha Ocean's performance, delivery, and price competitiveness were internationally verified through this bidding war," adding "it will serve as valid experience in subsequent pipelines such as follow-up projects to Poland's Orka project, submarine and naval vessel exports to Middle Eastern and Southeast Asian countries, and North American MRO cooperation."
FAQ
What caused Hanwha Ocean stocks to fall on the 7th?
Hanwha Ocean stocks declined 22.65% to 89,800 won on the 7th after Canada selected Germany's ThyssenKrupp Marine Systems (TKMS) as the preferred bidder for the Canadian Patrol Submarine Project (CPSP) on the 6th (local time). The CPSP project was estimated at 60 trillion won in total value including construction of 12 submarines and over 30 years of maintenance, repair, and operations.
Why do analysts view the stock decline as a buying opportunity?
Analysts stated that the possibility of winning the CPSP contract was not reflected in calculating Hanwha Ocean's target stock price. Lee Dong-heon, a researcher at Shinhan Investment & Securities, explained that the decline due to the event's disappearance is a supply and demand issue, not fundamental damage, and that the value of the CPSP project was an option not reflected in existing valuation calculations.
What rights does Hanwha Ocean retain after losing the CPSP bid?
Canadian Prime Minister Mark Carney stated that both TKMS and Hanwha Ocean met operational requirements, and that Hanwha Ocean retains the right to negotiate if contract negotiations with TKMS break down. Analysts noted that Hanwha Ocean built a track record of competing on equal footing with Germany in submarine construction.
