Korea's three major shipbuilders topped 30 trillion won in combined first-half sales this year, dispelling concerns of a peak-out. New orders in the first half also comfortably exceeded $30 billion, driven by increased orders for liquefied natural gas (LNG) carriers, a high-value-added vessel type, building up years' worth of quality work. With the possibility of expanding special-purpose vessel businesses such as U.S. warships through MASGA, the Korea-U.S. shipbuilding cooperation project, growing larger, forecasts suggest the current shipbuilding super cycle will run even bigger and longer.
HD Korea Shipbuilding & Offshore Engineering (009540), the intermediate holding company of HD Hyundai, said in a regulatory filing on the 29th that its preliminary second-quarter consolidated sales reached 8.927 trillion won and operating profit reached 1.6451 trillion won. The figures represent increases of 20.2% and 72.5%, respectively, from a year earlier, sharply exceeding brokerage estimates of 8.711 trillion won in sales and 1.4797 trillion won in operating profit — a surprise result. In particular, operating profit was the highest on a quarterly basis since the company's launch in June 2019. The operating profit margin, a profitability indicator, rose 5.6 percentage points to 18.4% in the second quarter this year from 12.8% in the second quarter last year. This also surpassed the 16.9% forecast by major brokerages. Also notable is that HD Hyundai Heavy Industries, its main subsidiary, joined the "1 trillion won club" by posting second-quarter operating profit of 1.0399 trillion won.
Widening the scope to the first-half basis, HD Korea Shipbuilding's sales rose 20.2% to 17.0679 trillion won, while operating profit surged 65.6% to 3.0011 trillion won. It is the first time HD Korea Shipbuilding's first-half operating profit has topped 3 trillion won. HD Korea Shipbuilding cited improved productivity, an expanded share of sales from high-priced vessels, and selective orders as reasons behind the strong results. In particular, the analysis is that the integration synergy from the merger between HD Hyundai Heavy Industries and HD Hyundai Mipo late last year fully materialized, driving the improvement in profitability.
Hanwha Ocean (042660) and Samsung Heavy Industries (010140), which announced earnings earlier, also achieved double-digit growth this year. As a result, Korea's three major shipbuilders are experiencing a "second shipbuilding renaissance" following the one in the mid-2000s. The combined first-half sales of the shipbuilding Big Three came to 31.854 trillion won, up 23.4% from a year earlier, while operating profit rose 72.4% to 4.7764 trillion won. The three companies' combined orders also reached $31.1 billion, more than double the figure a year ago.
Even amid the sudden variable of a "U.S.-Iran war," the three shipbuilders received better-than-expected results in the first half, brightening prospects for achieving their annual targets of 60 trillion won in sales and 10 trillion won in operating profit. This is because favorable exchange rate conditions are continuing and new LNG carrier orders keep coming in. In the second half of this year, another positive factor is the increased likelihood of clinching U.S. LNG project and warship order contracts, using the recently opened Korea-U.S. Shipbuilding Cooperation Center as a forward base. This is why major brokerages have simultaneously raised their annual earnings outlooks for the three shipbuilders.
The three shipbuilders are also making efforts to find next-generation growth drivers such as floating data centers (FDC) and floating small modular reactors (FSMR), preparing for the future order cliff that lies behind the boom led by LNG carriers. Having experienced a prolonged downturn in the 2010s, they have moved to preemptively manage risks. The representative frontrunner is the FDC, dubbed the "data center at sea." The FDC is emerging as an alternative to solve the difficulties of securing sites, the enormous power supply, and server cooling costs that onshore data centers face.
An HD Korea Shipbuilding official said at the earnings conference call that day regarding FDC orders, "We are closely discussing with various companies and working to produce visible results." Hanwha Ocean, which stands out in the special-purpose vessel field, is seeking new opportunities in projects such as the next-generation destroyer (KDDX) program and "Jangbogo-N," a nuclear-powered submarine development project. Samsung Heavy Industries, based on the EPC (engineering, procurement, and construction) capabilities it has accumulated in the offshore plant field including floating liquefied natural gas production facilities (FLNG), has partnered with U.S. nuclear power design and engineering firm Sargent & Lundy (S&L) to develop a standard FSMR platform.
