Profits soar for shipbuilding ‘Big Three’

Operating profits to jump 226% in first half on high-value vessel deliveries

South Korea’s three largest shipbuilders are set to post a combined operating profit of more than 2 trillion won ($1.45 billion) in the first half of this year—more than triple the figure recorded during the same period last year. The surge is being driven by robust sales of high-value vessels, especially liquefied natural gas (LNG) carriers.

LNG dual-fuel container ship built by HD Hyundai Heavy Industries./HD Hyundai Heavy Industries

According to financial data provider FnGuide and industry sources, HD Korea Shipbuilding & Offshore Engineering (HD KSOE), Hanwha Ocean, and Samsung Heavy Industries (SHI) are estimated to have generated a combined operating profit of 2.57 trillion won ($1.87 billion) in the first six months of the year, up 226% from 788.5 billion won a year earlier. For the second quarter alone, operating profit is expected to hit 1.33 trillion won, up 167% from a year ago.

HD KSOE, the intermediate holding company overseeing HD Hyundai’s shipbuilding businesses, is forecast to report 900 billion won in operating profit for the second quarter, a 139% increase year-on-year. Its first-half operating profit is projected to total 1.76 trillion won, a 228% jump from last year.

Hanwha Ocean is expected to swing to a profit in the second quarter with more than 250 billion won in operating income. For the first half, the shipbuilder is projected to earn around 510 billion won—more than ten times what it earned a year earlier. After posting its first annual profit in four years last year, Hanwha Ocean’s earnings momentum appears to be accelerating.

Samsung Heavy Industries is estimated to have posted 298.8 billion won in operating profit in the first half, up 43% from the same period in 2023.

A view of Hanwha Ocean’s Geoje shipyard./Hanwha Ocean

Industry analysts say that improved margins are a key factor behind the earnings growth, as low-margin vessels ordered during the previous downturn have largely been delivered. “The share of high-priced, high-value orders is growing,” said one shipbuilding industry source. “Korea’s large shipbuilders could see further profit gains in the second half.”

HD KSOE’s main subsidiary, HD Hyundai Heavy Industries (HD HHI), is expected to post a second-quarter operating margin of around 12%. That figure has climbed steadily from around 5% in mid-2022 to 11.3% in the first quarter of this year. The company has seen its profitability strengthen as low-margin vessels ordered in 2020 and 2021 now make up only about 2% of its current sales.

Kyobo Securities reports that LNG carriers, which carry higher profit margins, accounted for 69.1% of HD HHI’s second-quarter sales, up from 60.7% in the first quarter. Another group subsidiary, HD Hyundai Samho, is projected to deliver a 17% operating margin for the second quarter.

Hanwha Ocean posted an 8.2% operating margin in the first quarter and is expected to maintain a 7% margin in the second quarter, after recording a loss during the same period last year. In 2023, the company’s annual operating margin stood at just 2.2%. Its latest gains are bolstered by submarine sales and long-term maintenance contracts for U.S. Navy vessels.

Despite global ship orders falling by half this year compared to last, raising questions about the sustainability of the recent boom, South Korea’s shipbuilders are prioritizing high-margin, next-generation vessels to protect their bottom line.

HD HHI has about 70% of its order backlog in gas carriers, Hanwha Ocean’s LNG-related orders exceed 60% of its total, and SHI is doubling down on floating LNG production, storage, and offloading units—where it holds a leading global market share.

[Kim Nam-hee]

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