[Edaily Reporter Shin Ha-yeon ] On the 11th, iM Securities projected that the value of HD HYUNDAI HEAVY INDUSTRIES(329180)’s engine business would be reevaluated following the company’s decision to make large-scale investments to expand its medium-sized engine production capacity and build a dedicated factory for small modular reactors (SMRs). The firm maintained its “Top Pick” rating for the company, noting that despite the weak stock prices in the shipbuilding sector, its fundamentals—including order intake and earnings—remain solid. The firm also maintained its “Buy” rating and target price of 860,000 won.

Byeon Yong-jin, an analyst at iM Securities, stated, “The long-awaited details of the engine capacity expansion have finally been disclosed.”

On the 10th, HD HYUNDAI HEAVY INDUSTRIES announced a total investment of 1.0722 trillion won in medium-sized engine and SMR facilities. Of this amount, 833.6 billion won is earmarked for medium-sized engines, with the aim of expanding production capacity to meet the growing engine-powered generation market driven by rising global electricity demand.

The company plans to proceed with land acquisition, the construction of a new plant, and the installation of production facilities, with the investment period extending through May 2028. Medium-sized engine production capacity will expand from the current 2.7 GW per year to 4 GW following the expansion. The utilization rate of the new plant, expected to begin operations in the second half of 2028, is projected to start at 30% and rise to 100% by 2030.

Researcher Byeon explained, “Accordingly, we can anticipate approximately 1 trillion won in revenue per 1 GW annually and an operating profit margin of over 20 percent,” adding, “If the expansion is completed as planned and orders are secured—presumably through exports—a total revenue increase of over 4 trillion won is expected.”

The company will also invest 238.6 billion won in its SMR business. To enter the SMR primary component manufacturing sector and accommodate increased order volumes, the company plans to build SMR-dedicated factories and facilities while optimizing its existing plants. The investment period will last until April 2029.

Researcher Byun stated, “This scale is sufficient to manufacture two sets of TerraPower’s Natrium SMR primary equipment, totaling approximately 345 MW, annually,” adding, “HD HYUNDAI HEAVY INDUSTRIES emphasized that this expansion is not intended solely for data center engines.”

He continued, “The goal is to meet the growing global demand for onshore power generation engines—not only for data centers but also for national power grids and emergency generators for nuclear power plants. This can be interpreted to mean that demand for engines remains robust, even as some onshore data center projects in the U.S. have recently stalled due to market fluctuations.”

The analyst assessed that HD HYUNDAI HEAVY INDUSTRIES’ fundamentals remain solid despite the recent correction in shipbuilding stock prices across the board. Since the start of the year, shipbuilding stock prices have been on a downward trend, falling more than 10% from the beginning of the year. HD HYUNDAI HEAVY INDUSTRIES fell 10.0%, SamsungHeavyIndustries 11.6%, and Hanwha Ocean 25.5%.

Analyst Byun pointed out, “Despite the announcement of a capacity expansion—which clearly serves as a basis for increased corporate value—HD HYUNDAI HEAVY INDUSTRIES’ stock price closed lower following the announcement,” adding, “Although the company maintains excellent fundamentals, including a positive surprise in third-quarter earnings for the shipbuilding sector and having effectively exceeded this year’s order target, these factors are not being reflected as catalysts for a rise in the stock price.”

He cited slow progress in cooperation regarding U.S. naval vessel projects as the reason behind the stock’s weakness. Although the White House and the U.S. Congress have consistently highlighted the need for overseas shipbuilding, the lack of substantial progress on related legislation means there is insufficient momentum to drive the stock price higher, according to the analysis.

However, he noted that there is a possibility that the stock price momentum for shipbuilding stocks related to the U.S. naval vessel project could pick up again starting in the second half of this year.

Analyst Byun explained, “It has become difficult to expect momentum in shipbuilding stock prices related to naval vessel projects in the second half of this year,” adding, “The upcoming third-quarter earnings outlook is also unfavorable compared to the second quarter, as there are numerous profit-eroding factors, including the strong won, a decrease in operating days due to summer vacations and accidents, and rising distribution prices for thick plates.”

He continued, “However, the fundamentals of the core shipbuilding business remain strong,” emphasizing that “global ship orders totaled 59.72 million CGT as of August, representing a 60.6% increase year-over-year—the strongest order trend since 2021.”

In particular, he viewed it as a positive sign that orders for liquefied natural gas (LNG) carriers, tankers, and container ships—the main vessel types for Korean shipbuilders—account for 67% of the total order volume.

Research Analyst Byun stated, “We maintain our view that the shipbuilding sector’s weighting should be increased and that HD HYUNDAI HEAVY INDUSTRIES is our Top Pick,” adding, “The current combination of a lower stock price, improved earnings, and a recovering order book means the stock is inevitably undervalued.”