Kiwoom Securities cut its target price for HD Hyundai Heavy Industries by 18%, to 720,000 won (approximately $540) from 880,000 won (approximately $660). The brokerage kept its “Buy” rating, saying the adjustment was unavoidable given expectations that third-quarter results will fall short of market forecasts.

In a report dated the 19th, Kiwoom Securities projected HD Hyundai Heavy Industries’ third-quarter revenue and operating profit at 5.9568 trillion won (approximately $4.5 billion) and 918.5 billion won (approximately $687.9 million), respectively. Revenue would rise 34.8% and operating profit 64.8% from a year earlier, but both figures are below market consensus. Lee Han-gyeol, an analyst at Kiwoom Securities, said the number of working days fell nearly 20% from the previous quarter and the stronger won also weighed on profitability.

Behind the target price cut is a valuation adjustment. As concerns grow that the commercial shipbuilding cycle has peaked amid aggressive capacity expansion by Chinese shipyards, Kiwoom lowered its target price-to-earnings (PER) ratio to 17 times from 23 times, reflecting a more conservative view of the industry cycle.

Order momentum varies sharply by business segment. New orders through the end of August totaled about $17.5 billion, or 86% of the annual target. Commercial ships and engines exceeded their targets, while offshore and special vessels lagged. In commercial ships, the company secured 127 vessels across all ship types — 13 LNG carriers, 31 LPG carriers, 30 container ships, 46 product carriers and 2 tankers — with orders rising evenly across segments.

The special vessel segment, by contrast, is expected to fall short of its $3 billion annual target, hurt in part by a failed bid for Thailand’s frigate program. The offshore segment is also well behind target. Still, analysts say the company could come close to its order goal if it wins a tender for two floating production, storage and offloading (FPSO) units ordered under Australia’s Browse project.

SegmentQ3 ForecastYear-on-YearRevenue5.9568 trillion won (approximately $4.5 billion)+34.8%Operating profit918.5 billion won (approximately $687.9 million)+64.8%

Note: Kiwoom Securities forecasts

Despite the near-term earnings weakness, the medium- to long-term growth drivers remain valid, according to the report. In shipbuilding, the vessel mix and productivity continue to improve, while the engine division is expected to see revenue and profit grow together on a higher share of eco-friendly engines and rising prices. After 2028, onshore power generation engine output is projected to expand to 4 GW from 0.7 GW, with more than 3 GW of power generation engines supplied annually, driving company-wide profit improvement.

“From a medium- to long-term perspective, we expect the engine division’s results to improve significantly and lead the company’s overall profit growth,” Lee said.

The target price cut is seen as reflecting external variables — a short-term correction in the shipbuilding cycle and a stronger won. Still, with steady commercial ship orders and structural growth in the engine division reinforcing each other, observers say the pace of any earnings recovery will depend on the order backlog and how quickly engine revenue is recognized in the second half and beyond.