[Edaily Reporter Shin Ha-yeon ] On the 7th, NH INVESTMENT & SECURITIES assessed that while HD HYUNDAI HEAVY INDUSTRIES(329180)is seeing strong orders for merchant ships, large-scale orders in sectors other than merchant ships are necessary for a medium- to long-term stock price rebound. The firm believes that, in the short term, securing additional orders for power generation engines—which currently offer the highest order visibility—is crucial. While maintaining its “Buy” rating, the firm lowered its target price by 3% from 720,000 won to 700,000 won.

Jeong Yeon-seung, an analyst at NH INVESTMENT & SECURITIES, stated, “As of the end of August, merchant ship orders totaled $13.1 billion, already exceeding the annual target,” adding, “While global merchant ship orders are in a super-boom phase, the rise in ship prices has been more limited than expected.”

The fact that ship prices are not keeping pace with the strong momentum of global merchant ship orders is a cause for concern. The aggressive expansion of production capacity by Chinese shipbuilders and the decline in liquefied natural gas (LNG) carrier prices were cited as the main causes.

Researcher Jeong explained, “HD HYUNDAI HEAVY INDUSTRIES has secured differentiated growth drivers through large LPG carriers, where ship prices are rising, and the expansion of power generation engines; however, it remains subject to the broader valuation adjustments in the shipbuilding industry.”

Accordingly, analysts suggest that the key to a future stock price rebound lies in securing large-scale orders in businesses other than merchant ships. NH INVESTMENT & SECURITIES identified power generation engines, floating data centers, and specialty vessels as key growth drivers.

Among these, power generation engines are expected to deliver results the fastest. Analyst Jeong noted, “While floating data centers and specialty vessels have a sufficient medium- to long-term order pipeline, it will take time to secure actual orders; in contrast, power generation engines offer high short-term order visibility.”

He further emphasized, “Considering prices that are more than 20% lower than those of competitors and the ability to deliver quickly through capacity expansion, we believe there is ample potential for additional orders.” This implies that securing additional orders for power generation engines could drive short-term stock price momentum.

Earnings are expected to take a brief breather in the third quarter. NH INVESTMENT & SECURITIES projected HD HYUNDAI HEAVY INDUSTRIES’ third-quarter revenue at 5.867 trillion won, up 32.8% year-over-year, and operating profit at 901.1 billion won, a 61.7% increase. The operating profit margin is forecast at 15.4%. Operating profit is expected to fall short of the market consensus of 1.012 trillion won.

Compared to the previous quarter, revenue and operating profit are expected to decline by 7.4% and 13.3%, respectively. The reduction in business days due to summer vacations and the Chuseok holiday, along with the decline in the won-dollar exchange rate, are expected to weigh on performance. However, the impact of rising raw material prices—such as those for thick plates—and one-time costs in the offshore and specialty vessel segments is expected to be limited.

Researcher Jeong explained, “The impact of the revenue decline is expected to be greater in the merchant ship segment than in the special-purpose vessels, offshore plants, and engine segments.” He estimated that third-quarter revenue for the merchant ship segment would be 4.052 trillion won, down from 4.677 trillion won in the previous quarter, while revenue for the engine segment would rise to 1.082 trillion won from 952 billion won in the previous quarter.

In terms of profitability, the engine segment is also gaining prominence. Operating profit for the engine segment in the third quarter is projected at 265 billion won, with an operating margin of 24.5%. This significantly exceeds the projected operating margin of 15.5% for the merchant ship segment during the same period.

The company projected that earnings would improve again in the fourth quarter. It is anticipated that revenue and operating profit will rise once more as the number of business days increases and the proportion of high-value-added vessel construction expands. Fourth-quarter revenue is estimated at 6.344 trillion won, with operating profit at 943 billion won. However, the outcome of labor-management negotiations regarding performance-based compensation was cited as a variable affecting fourth-quarter profitability.

In the medium to long term, the firm anticipates that profit levels will rise to a new level starting in 2028, when LPG carriers and power generation engines begin contributing significantly to earnings. For this year, annual revenue is expected to reach 24.459 trillion won, a 39.1% increase from the previous year, while operating profit is projected to rise 86.0% to 3.789 trillion won. For 2028, revenue is projected to reach 28.569 trillion won, with operating profit at 4.917 trillion won. The operating profit margin is also estimated to rise from 15.5% this year to 17.2% in 2028.

However, reflecting the decline in the won-dollar exchange rate, the firm slightly lowered its medium- to long-term earnings expectations. It revised down this year’s and next year’s revenue estimates by 1.2% each compared to previous projections, and lowered operating profit estimates by 0.9% and 4.3%, respectively. The target valuation was also adjusted downward to reflect the increase in the cost of capital resulting from rising long-term interest rates.

Analyst Jeong emphasized, “Ultimately, securing major orders in sectors other than merchant ships is necessary for a medium- to long-term stock price rebound,” adding, “The key areas are power generation engines, floating data centers, and specialty vessels.” Regarding power generation engines, he assessed that “short-term order visibility is high” and that there is ample potential for additional orders.