Kiwoom Securities lowered its target price for Hanwha Ocean stocks to 144,000 won from 179,000 won on July 15, citing the company's failure to secure the Canadian submarine project (CPSP). The brokerage maintained its 'BUY' investment rating, stating that mid- to long-term growth expectations remain valid due to the expansion of US naval vessel business. Analyst Lee Han-kyul adjusted the target price-to-earnings ratio (PER) from 25x to 23x by reducing the premium margin on the past shipbuilding boom valuation ceiling of 20x from 25% to 15%.
Kiwoom Securities Adjusts Hanwha Ocean Target Price to 144,000 Won
Lee Han-kyul stated in a report that the target price revision reflects disappointment over the Canadian submarine project outcome while acknowledging continued growth potential from US military shipbuilding expansion. The analyst reduced the premium applied to historical peak shipbuilding sector valuations, resulting in the PER adjustment from 25 times to 23 times earnings.
Hanwha Ocean Q2 Forecast Shows 45.9% Revenue Growth
Kiwoom Securities projected Hanwha Ocean's Q2 consolidated revenue at 4.805 trillion won and operating profit at 547.4 billion won, representing year-over-year increases of 45.9% and 47.3% respectively. The operating profit forecast exceeds market consensus, with an estimated operating profit margin (OPM) of 11.4%. Lee explained that the commercial vessel division will deliver strong performance through increased high-value ship proportions, productivity improvements, and favorable exchange rate effects. The energy plant division is expected to see reduced fixed cost burdens as approximately 1.5 trillion won in revenue from the P79 project is recognized ahead of schedule. However, the special vessel division is projected to continue posting operating losses due to fixed cost burdens from preemptive facility investments despite revenue growth.
Second-Half Order Momentum Expected to Strengthen
Hanwha Ocean secured orders for 21 commercial vessels worth approximately $3.4 billion through the end of June, including 6 LNG carriers, 12 very large crude carriers (VLCCs), and 3 very large ammonia carriers (VLACs). Given that the company's annual new orders in 2024 totaled approximately $9.5 billion, additional orders in the second half are necessary. Kiwoom Securities forecasts that new orders will gradually increase in the second half, driven by expanded US-sourced LNG carrier orders and increased tanker orders following global energy supply chain reorganization. The offshore division is expected to secure orders for Namibia's Venus FPSO project and South American regional projects.
Special Vessel Segment Retains Long-Term Growth Potential
Despite failing to win the Canadian submarine project (CPSP), which was a core project for this year, the special vessel division still has opportunities including Thailand's frigate project, Estonia's offshore patrol vessel (OPV) project, and Korea's next-generation destroyer (KDDX) project. Lee emphasized that the possibility of US naval vessel business expansion will serve as a long-term growth driver, stating that attention should be paid to the mid- to long-term growth momentum in the special vessel division alongside steady growth in the commercial vessel division. The analyst noted that coordination of opinions will require time during the US shipbuilding industry reconstruction process.
FAQ
Why did Kiwoom Securities lower Hanwha Ocean's target price on July 15?
Kiwoom Securities reduced the target price from 179,000 won to 144,000 won due to Hanwha Ocean's failure to secure the Canadian submarine project (CPSP). The brokerage adjusted the target PER from 25x to 23x by lowering the premium margin applied to historical shipbuilding sector peak valuations from 25% to 15%.
What are Hanwha Ocean's Q2 earnings forecasts?
Kiwoom Securities projects Q2 consolidated revenue of 4.805 trillion won (up 45.9% year-over-year) and operating profit of 547.4 billion won (up 47.3% year-over-year), with an operating profit margin of 11.4%. The commercial vessel division is expected to benefit from high-value ship mix and productivity gains, while the energy plant division will see reduced fixed costs from P79 project revenue recognition of approximately 1.5 trillion won.
What growth opportunities remain for Hanwha Ocean after losing the Canadian submarine contract?
The special vessel segment still has pending projects including Thailand's frigate, Estonia's offshore patrol vessel (OPV), and Korea's next-generation destroyer (KDDX). Kiwoom Securities identifies potential expansion of US naval vessel business as a key long-term growth driver, though coordination during US shipbuilding industry reconstruction will take time.
