[MarketING] Shipbuilding Stocks Sail Smoothly Amid Rising Prices and Increased Orders

KOSPI Ends Flat
KOSDAQ Falls for the First Time in 7 Days

The domestic stock market, which had been on an upward trend, halted its rally due to uncertainties surrounding the U.S. debt ceiling negotiations and profit-taking desires. The KOSPI closed flat, while the KOSDAQ ended in the red for the first time in seven days. Amid the overall market weakness, shipbuilding stocks showed strength, buoyed by expectations of improved earnings from rising ship prices and increased order backlogs. In particular, Daewoo Shipbuilding & Marine Engineering, newly rebranded as Hanwha Ocean, surged more than 7% on heightened expectations for a fresh start.

KOSPI Closes Flat... KOSDAQ Falls for the First Time in 7 Days

On the 24th, the KOSPI closed at 2,567.45, down 0.01 points (0.00%) from the previous day. The KOSDAQ ended the session at 855.46, down 3.70 points (0.43%).

[Image source=Yonhap News]

Institutional selling pressure dragged the indices down. On that day, institutions net sold 185.7 billion KRW in the KOSPI market and 74.1 billion KRW in the KOSDAQ market. Conversely, individual investors bought 132.8 billion KRW in the KOSPI and 229.7 billion KRW in the KOSDAQ, but their purchases were insufficient to prevent the index decline. Foreign investors bought 94.2 billion KRW in the KOSPI market but net sold 147.7 billion KRW in the KOSDAQ market.

Kim Seok-hwan, a researcher at Mirae Asset Securities, analyzed, "As Asian markets including Japan and Hong Kong showed weakness due to concerns over delays in the U.S. debt ceiling negotiations, the domestic market also followed suit. Profit-taking by institutions and foreigners increased, and the won-dollar exchange rate rose again, expanding the preference for safe-haven assets." On that day, the won-dollar exchange rate closed at 1,317.4 KRW, up 4.7 KRW from the previous day in the Seoul foreign exchange market.

Despite the market weakness, shipbuilding stocks sailed smoothly. Daewoo Shipbuilding & Marine Engineering, newly rebranded as Hanwha Ocean, rose 7.47%, Samsung Heavy Industries increased by 2.81%, HD Hyundai Heavy Industries by 2.28%, and HD Hyundai Heavy Industries Holdings by 1.26%.

This is interpreted as reflecting expectations of improved earnings due to rising ship prices and increased order backlogs. The new ship price index stood at 168.1 points as of the 12th of this month, up 3.6% since the beginning of the year. Jeong Yeon-seung, a researcher at NH Investment & Securities, said, "The strength in new ship prices indicates shipbuilders' strong price competitiveness and enhanced visibility of long-term earnings improvement. Currently, general cargo ships have secured orders through 2025, and LNG (liquefied natural gas) carriers through 2026, making earnings improvement clear until 2026."

Yu Jae-seon, a researcher at Hana Securities, said, "Ship prices have been steadily rising since the second half of 2020," adding, "The rise in ship prices is considered to reflect future supply shortages." He further noted, "Shipbuilders' ordinary earnings are expected to enter a clear profit trend in the second half of this year rather than the first half, and as the proportion of high-priced ship construction increases next year and the year after, the pace of margin growth will accelerate."

The increase in order backlogs is also positive. Researcher Jeong said, "Investment points in the shipbuilding industry are the rise in new ship prices and whether order backlogs based on sales are increasing. Although the absolute order volume is decreasing this year, this is due to limited slot sales for price increases by shipbuilders. Since 2023, new ship prices, led by LNG carriers, have been rising, and despite orders being placed at increased prices, order backlogs based on sales are actually increasing." The LNG order momentum is expected to strengthen in the second half of this year due to the expansion of U.S. LNG export projects and LNG carrier orders related to Qatar.

Daewoo Shipbuilding & Marine Engineering, Newly Rebranded as Hanwha Ocean, Hits 52-Week High

Among shipbuilding stocks, Daewoo Shipbuilding & Marine Engineering, newly rebranded as Hanwha Ocean, showed remarkable stock price strength. On that day, Daewoo Shipbuilding & Marine Engineering rose more than 7%, pushing its stock price into the 30,000 KRW range. During the session, it reached 31,050 KRW, setting a new 52-week high.

The previous day, Daewoo Shipbuilding & Marine Engineering held an extraordinary shareholders' meeting where it approved amendments to the articles of incorporation, including changing the company name to "Hanwha Ocean," and appointed nine new directors. Thus, about six months after signing the main acquisition contract on December 16 last year, Daewoo Shipbuilding & Marine Engineering has newly started as a Hanwha Group affiliate. Hanwha, through five affiliates including Hanwha Aerospace, Hanwha Systems, Hanwha Impact Partners, and two Hanwha Energy subsidiaries, invested approximately 2 trillion KRW in a paid-in capital increase, acquiring 49.3% of Hanwha Ocean's shares and becoming the major shareholder.

Brokerages positively evaluated the synergy effects with Hanwha Group. Han Seung-han, a researcher at SK Securities, said, "Daewoo Shipbuilding & Marine Engineering is a global leader in LNGC delivery performance and is expected to maintain stable order momentum amid increasing global LNG demand. With Hanwha Group's acquisition of management rights of HSD Engine, vertical integration of shipbuilding is expected to enhance Daewoo Shipbuilding & Marine Engineering's competitiveness in terms of delivery and pricing, making it a buying opportunity."

Hi Investment & Securities raised Daewoo Shipbuilding & Marine Engineering's target price from 32,000 KRW to 34,000 KRW. Byeon Yong-jin, a researcher at Hi Investment & Securities, explained, "Hanwha Group is reportedly planning to expand business areas such as chartering using LNG carriers built by Daewoo Shipbuilding & Marine Engineering. It is expected to maximize corporate value by utilizing Daewoo Shipbuilding & Marine Engineering across various businesses operated by the group beyond shipbuilding. Considering the alleviation of concerns over perpetual bond interest and principal repayment, we have raised the target price."

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