[Click eStock] "HD Hyundai Heavy Industries: Merchant Ship and Data Center Engine Outlook...Target Price Up"

NH Investment & Securities Raises HD Hyundai Heavy Industries Target Price by 16%

On May 13, NH Investment & Securities raised its target price for HD Hyundai Heavy Industries by 16%, from 8.6 million won to 10 million won, citing expectations for improved profitability in the merchant ship business and expanded engine sales for data center applications. The brokerage maintained its "Buy" investment rating.

Researcher Jung Yeonseung of NH Investment & Securities explained the target price adjustment, stating, "We are raising our operating profit estimates for 2026 to 2028 by 20%, 16%, and 11% respectively, reflecting stronger-than-expected profitability in merchant ships, expanded medium-speed engine production capacity, and additional order inflows."

HD Hyundai Heavy Industries' merchant ship business recorded an operating profit margin of 15.9% in the first quarter, significantly exceeding expectations. Jung noted, "The sales proportion of merchant vessels ordered in 2024 to 2025, which offer high profitability for large ships, currently stands at only 33%, indicating ample room for further margin improvement. In addition, the ongoing boom in LPG and LNG carrier orders is driving robust annual order intake this year, and the earnings cycle is expected to extend for a prolonged period."

Furthermore, the medium-speed engine business is expected to see profitability improve as demand for on-site power generation for data centers begins to accelerate. On-site power generation refers to producing electricity directly at the site where it is consumed, and recently, medium-speed engines for ships have emerged as a key power source in this field.

Jung added, "With the expansion of sales of high-value-added medium-speed engines for power generation, further improvement in the engine division's profitability is expected. Production capacity for medium-speed engines currently stands at 3 GW per year, but it is expected to increase by more than 30%." NH Investment & Securities forecast that the engine division's operating profit will reach 1.5 trillion won by 2030.

In the first quarter, HD Hyundai Heavy Industries posted sales of 5.92 trillion won (up 54.8% year-on-year) and operating profit of 905.4 billion won (up 108.8%), significantly surpassing NH Investment & Securities' forecast of 731 billion won in operating profit.

NH Investment & Securities noted that while there could be some downward pressure on margins in the second quarter due to rising costs for certain raw materials (such as paint), the increasing proportion of high-margin vessel sales is expected to support continued profit improvement.

There are also expectations regarding an announcement on engine division capacity expansion in the first half of this year. Jung commented, "As of the end of the first quarter, the company maintains a net cash financial structure, so there is ample funding capacity for expansion."

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