[Edaily Reporter PARK MIN ] On the 3rd, HYUNDAI MOTOR SECURITIES analyzed that STX Heavy Industries(071970)achieved a massive third-quarter earnings surprise due to fixed-cost reductions and orders secured at high prices, noting that investors should focus on production capacity (CAPA) expansion and mid-to-long-term growth potential rather than short-term earnings fluctuations.

The firm maintained its “Buy” investment rating and kept its target price at 70,000 won. Based on the previous trading day’s closing price (41,500 won), the stock has upside potential of 68.7%.

Baek Ju-ho, an analyst at HYUNDAI MOTOR SECURITIES, stated in a company analysis report published today, “HD-Hyundai Marine Engine’s third-quarter consolidated revenue rose 93.7% year-over-year to 211.4 billion won, while operating profit surged 197.2% to 60.3 billion won (operating margin of 28.5%).” "This significantly exceeded the market consensus (operating profit of 40 billion won) by 50.8%."

The key factors driving the strong performance were cited as an increase in ship engine deliveries and an improvement in the product mix. Analyst Baek explained, “As the number of engines delivered roughly doubled compared to the previous quarter, the fixed-cost leverage effect (a reduction in fixed costs per unit due to increased sales) contributed approximately 3 percentage points to the improvement in the operating profit margin, while the rise in average selling price (ASP) and product mix improvements contributed about 2 percentage points.”

In particular, profitability improved significantly as the revenue share of dual-fuel (DF) engines surged from 7% in the second quarter to 20% in the third quarter, and the revenue share from orders secured in 2025—which carried higher unit prices—expanded to approximately 70%.

The company projected that fourth-quarter performance would experience a short-term lull due to delivery schedules. Analyst Baek noted, “Engine deliveries in the fourth quarter are expected to be at a level midway between those of the second and third quarters, resulting in revenue of 189.1 billion won and operating profit of 51.4 billion won,” adding, “Rather than a short-term profit decline, it is more important to consider whether estimates will be revised upward due to expanded deliveries and facility expansions starting in 2027.”

The report highlighted the potential for aggressive expansion of production capacity. As of the end of the third quarter, the engine order backlog stood at approximately 1.7 trillion won, securing volume through mid-2028, and the company is currently securing new orders for deliveries scheduled for 2029.

Researcher Baek noted, “The current annual engine production capacity stands at approximately 1.4 million horsepower, supported by 11 test beds, and the company is considering the introduction of a two-shift work system to expand production in 2027,” adding, “Adding one more test bed could increase nominal production capacity by about 10 percent.”

Regarding the target stock price calculation, Analyst Baek explained, “As the visibility of orders for 2028 is confirmed, we have revised the applied earnings per share (EPS) to 8,158 won, which is the projected EPS for 2028, and conservatively applied a target price-to-earnings ratio (Target PER) of 8.7x, which is the lower end of the 2025 PER range.” He added, “Given the robust conditions in the Chonbang market and the recent stock price correction, there is ample room for the stock price to rise over the medium to long term.”