[Click eStock] Daewoo Shipbuilding & Marine Engineering, Raised Sails by Hanwha, Begins Recovery in Orders

On the 24th, SK Securities announced the initiation of coverage on Hanwha Ocean (Daewoo Shipbuilding & Marine Engineering) with a buy rating and a target price of 34,000 KRW. Hanwha Group is set to become the largest shareholder of Hanwha Ocean with approximately a 49.3% stake through a 2 trillion KRW rights offering. Daewoo Shipbuilding & Marine Engineering will set sail anew under the new name "Hanwha Ocean" with the new sail of "Hanwha."

Seunghan Han, a researcher at SK Securities, stated, "We expect synergies in LNG, hydrogen & ammonia, and offshore wind power businesses between the group companies such as Hanwha Corporation, Hanwha Energy, Hanwha Impact, Hanwha Solutions, and the company, leading to orders for ships and offshore plants (LNGC, FLNG, WTIV, etc.). We also anticipate orders for special vessels (submarines & surface ships) through synergies with Hanwha Group's defense companies."

The target price was calculated by applying a price-to-book ratio (PBR) of 2.66 times to the 12-month forward book value per share (BPS) of 12,779 KRW, which is expected to enter an upward cycle based on a stable order backlog and the beginning of a full-scale recovery in order volume. The 2.66 times PBR is the average PBR of the company during 2005-2006, considering the current order backlog level and the timing of price increases. A 15% premium was applied due to expected stable growth through synergies after Hanwha Group’s acquisition and vertical integration of shipbuilding with HSD Engine.

Hanwha Ocean’s 2023 sales are expected to be 7.7441 trillion KRW (a 59.3% increase), with an operating loss of 15.1 billion KRW (continued deficit). Compared to 2021 and 2022, a decrease in order amounts due to global economic recession concerns is inevitable. However, from this year, the increase in shipbuilding volume since 2021 and the effect of rising ship prices will gradually accelerate. A high contract price level is expected to be maintained based on a stable LNGC order backlog and limited production capacity and technology. The performance improvement trend through selective orders focusing on high value-added ship types is expected to continue for the time being.

Researcher Han added, "In the fourth quarter of 2022, we proactively reflected an increase in labor and outsourcing costs expected this year, amounting to about 365 billion KRW, the highest among the three major shipbuilders. Due to lower wages compared to competitors and previous workforce attrition, a provision was set in advance. Therefore, there should be no difficulty in reducing the deficit through performance improvement this year."

This content was produced with the assistance of AI translation services.