Hanwha Ocean (042660.KS) is plunging in Monday's pre-market trading after news that it was passed over as the preferred bidder for Canada's next-generation submarine procurement program (CPSP). The setback for a major defense contract, valued at tens of trillions of won, has rapidly cooled investor sentiment.
As of 8:18 a.m. Monday, Hanwha Ocean was trading at 95,100 won, down 21,000 won, or 18.09%, from the previous session. As the stock had recently moved on prospects of winning the CPSP order, news of the German company's selection appears to be registering as a short-term shock.
Canadian Prime Minister Mark Carney announced on Sunday, at the naval base in Halifax, Nova Scotia, that Germany's ThyssenKrupp Marine Systems (TKMS) had been selected as the preferred bidder for the CPSP program. He added, however, that Canada retains the right to begin negotiations with Hanwha Ocean, the second-ranked candidate, should talks with TKMS collapse.
The CPSP involves Canada acquiring 12 next-generation submarines and includes maintenance, repair, and operation over 30 years. With total project costs potentially reaching tens of trillions of won, it has been regarded as a key overseas contract battle for Korea's shipbuilding and defense industries. Korea made concerted public-private efforts to win the bid, including sending a submarine directly across the Pacific to Canada, but failed to secure preferred-bidder status.
Still, some assessments hold that the CPSP loss does not undermine the direction of Hanwha Ocean's own earnings. Yuanta Securities projected Hanwha Ocean's second-quarter revenue at 3.631 trillion won and operating profit at 586 billion won. The operating profit figure is 17.9% above consensus. The analysis points to continued strength in the commercial vessel segment, as revenue recognition from high-priced ship orders increases and the effect of a weaker won adds support.
