LS Securities (078020.KS) lowered its target price for Hanwha Ocean (042660.KS), citing a sharp drop in the won-dollar exchange rate that dimmed third-quarter earnings expectations and weaker momentum around MASGA, the U.S. shipbuilding revitalization project, than in the first half. The brokerage maintained its "buy" rating, however, on the possibility that related policies will take clearer shape after the U.S. midterm elections.
LS Securities cut its target price for Hanwha Ocean to 90,000 won from 120,000 won on the 14th. That implies 34.1% upside from the previous close of 67,100 won. The target is based on a 15 times target price-to-earnings ratio applied to projected diluted earnings per share of 6,498 won in 2028, with a discount factored in.
Third-quarter results are expected to fall short of market expectations. Revenue is estimated at 3.69 trillion won, up 21.9% from a year earlier, with operating profit rising 74.1% to 504.6 billion won. That is about 10% below the consensus estimate of 563.3 billion won. Fewer working days in the quarter and the sharp fall in the won-dollar rate dragged on profitability, while fixed-cost pressure remains in the naval vessel division, according to the brokerage.
The commercial vessel business remains fundamentally solid, LS Securities said. Deliveries of liquefied natural gas carriers ordered in 2022 are continuing, and construction of vessels ordered in 2024 has begun, keeping the product mix centered on high-value-added ships. Container ships scheduled for delivery in 2028 are also entering the construction process in stages, which should sustain earnings power in the commercial vessel segment. The brokerage estimated operating profit from commercial vessels at 2.21 trillion won this year.
MASGA is the key variable for any re-rating of the stock. U.S. President Donald Trump signed a national security memorandum on naval shipbuilding reform in August, and Hanwha Philly Shipyard is gradually stabilizing, but expectations have fallen well below first-half levels. LS Securities attributed this to heightened geopolitical and policy volatility stemming from the U.S.-Iran war, as well as political uncertainty ahead of the midterm elections.
Momentum could revive after the midterms. If discussions on revising U.S. shipbuilding legislation, including the Byrns-Tollefson Amendment and the Jones Act, resume and the administration pushes ahead with industrial support measures, the value of Hanwha Ocean's U.S. business could come back into focus, the brokerage said. The failure to win Canada's Patrol Submarine Project is a setback, but additional opportunities remain, including Thai surface vessels and Saudi Arabian frigates.
Annual earnings growth is also expected to continue. LS Securities estimated Hanwha Ocean's revenue at 15.87 trillion won and operating profit at 2.15 trillion won this year, up 24.2% and 84.4% respectively from last year. Operating profit is projected to rise a further 16.8% to 2.52 trillion won in 2027. "We expect the company to gradually regain upward momentum as legislative revisions and administration-led shipbuilding support policies gain traction after the midterm elections," said Lee Jae-hyuk, an analyst at LS Securities.
