NH Investment Securities downgraded target prices for South Korea's three major shipbuilders on the 10th, citing diminished expectations for specialty ship revenue growth and weaker-than-anticipated LNG carrier pricing. Analyst Jung Yeon-seung reduced HD Hyundai Heavy Industries' target by 17% to 830,000 won, Samsung Heavy Industries to 34,000 won, and Hanwha Ocean to 126,000 won, while maintaining 'Buy' ratings on all three stocks. The downgrades followed Canada's selection of Germany's ThyssenKrupp Marine Systems (TKMS) as the preferred bidder for its next-generation submarine program, casting doubt on the Korean shipbuilders' mid-term specialty vessel sales expansion targets. Despite the cuts, Jung maintained a 'Positive' outlook on the shipbuilding sector, noting that reduced valuations following recent stock declines have eased concerns, with 2028 price-to-earnings ratios now at 10-13 times.
NH Investment Securities Cuts Shipbuilder Target Prices on the 10th
NH Investment Securities issued target price reductions for all three major Korean shipbuilders on the 10th. HD Hyundai Heavy Industries saw its target cut 17% to 830,000 won, Samsung Heavy Industries to 34,000 won, and Hanwha Ocean to 126,000 won. Jung maintained 'Buy' ratings on all three companies and kept a 'Positive' sector investment opinion. The report identified specialty ship growth uncertainty and flat LNG carrier pricing as primary drivers of the valuation adjustment.
Canada Submarine Loss Undermines Specialty Ship Growth Plans
Canada's selection of Germany's ThyssenKrupp Marine Systems (TKMS) as the preferred bidder for its next-generation submarine program represented the largest factor behind the target price cuts. HD Hyundai Heavy Industries had set a 2030 specialty ship revenue target of 7 trillion won, while Hanwha Ocean targeted 4 trillion won. Both companies currently generate 1-1.5 trillion won in annual specialty ship sales. Jung stated that "opportunities remain in Saudi Arabia, Greece, South America, and Southeast Asia, but concrete progress will take time," adding that "reducing the valuation premium assigned to the specialty ship segment is unavoidable until a new large project order momentum forms."
LNG Ship Prices Hold at $248.5M Per Vessel Since Late February
Clarkson data showed 174,000 cubic meter LNG carrier newbuilding prices at $248.5 million per vessel, maintaining a flat trend since a slight uptick in late February. Jung identified late September as a potential inflection point for LNG ship pricing, contingent on confirmed vessel orders related to Mozambique LNG projects. The analyst stated that "global LNG development projects are proceeding smoothly, and we expect approximately 70 LNG carrier orders annually through 2027," but noted that "from shipping companies' perspective, there is no urgency strong enough to drive price increases in the short term." Korean shipbuilders are expected to exceed annual commercial vessel order targets through expanded orders for tankers, LNG carriers, and LPG carriers.
Offshore Plant and Engine Orders Identified as Second-Half Recovery Factors
Jung designated offshore plant and medium-speed engine orders as key second-half turnaround variables. Samsung Heavy Industries has already secured Coral North FLNG and Delfin FLNG Unit 1 orders, limiting offshore plant risk. HD Hyundai Heavy Industries and Hanwha Ocean require at least one offshore plant order by year-end. For Hanwha Ocean, the Venus FPSO order result scheduled for late July to early August was identified as the core variable determining second-half earnings visibility. For HD Hyundai Heavy Industries, medium-speed engine expansion scale and data center engine orders were cited as key stock rebound factors. NH Investment Securities anticipates 1.5-2.0 GW of medium-speed engine capacity expansion and projects that engine division profit growth will drive overall earnings improvement from 2028. The specific expansion scale has not been confirmed.
Q2 Earnings Expected to Meet or Exceed Market Expectations
Second-quarter results are forecast to be generally favorable. HD Hyundai Heavy Industries is expected to report revenue of 6.335 trillion won and operating profit of 992.6 billion won, meeting market consensus. Hanwha Ocean may exceed market consensus due to one-time revenue effects related to P-79 FPSO. Samsung Heavy Industries' operating profit may slightly underperform elevated expectations, but the company received a relatively high stability assessment for its offshore plant segment based on secured FLNG orders. Jung stated that "recent stock declines have lowered Korean shipbuilders' 2028 price-to-earnings ratios to 10-13 times, easing valuation concerns," but added that "meaningful orders in specialty ships, offshore plants, and medium-speed engines are needed for valuation re-expansion."
FAQ
Why did NH Investment Securities downgrade Korean shipbuilder target prices on the 10th?
NH Investment Securities downgraded target prices due to diminished specialty ship revenue growth expectations following Canada's selection of Germany's TKMS for its submarine program, combined with LNG carrier newbuilding prices remaining flat at $248.5 million per vessel since late February rather than rising as anticipated.
What are the new target prices for HD Hyundai Heavy Industries, Samsung Heavy Industries, and Hanwha Ocean?
HD Hyundai Heavy Industries' target was cut 17% to 830,000 won, Samsung Heavy Industries to 34,000 won, and Hanwha Ocean to 126,000 won. Analyst Jung Yeon-seung maintained 'Buy' ratings on all three stocks and a 'Positive' sector outlook.
What factors could drive a second-half recovery for Korean shipbuilder stocks?
Jung identified offshore plant orders and medium-speed engine contracts as key second-half recovery variables. For Hanwha Ocean, the Venus FPSO order result due late July to early August is critical. For HD Hyundai Heavy Industries, confirmation of 1.5-2.0 GW medium-speed engine capacity expansion and data center engine orders would serve as stock rebound catalysts.
