South Korea’s three major shipbuilders posted a combined operating profit of 2.71 trillion won (approximately $1.9 billion) in the second quarter of this year, marking their best quarterly performance on record, while the country’s four major defense firms delivered 1.76 trillion won (approximately $1.2 billion) in operating profit, cementing their role as profit drivers. Order backlogs \u2014 enough to keep yards busy for three years \u2014 stand at 210 trillion won (approximately $146.2 billion) for shipbuilders and 100 trillion won (approximately $69.6 billion) for defense firms. Yet the response from the securities industry has been notably cold. Since earnings were announced, at least four securities firms have lowered target prices for HD Hyundai Heavy Industries, five for Hanwha Ocean, and three for Samsung Heavy Industries. Among defense contractors, nine firms cut targets for both Hyundai Rotem and Korea Aerospace Industries (KAI), and seven lowered targets for Hanwha Aerospace. Analysts say that “record earnings” and “ample order books” alone are insufficient to lift share prices. With no visible future growth engines, the industry faces an urgent need to convert its potential order pipeline into actual contracts.<\/p>\n
Record Earnings, but Why Has Market Sentiment Soured?<\/p>\n
According to financial data provider FnGuide on the 3rd, at least four securities firms lowered their target prices for HD Hyundai Heavy Industries, a subsidiary of HD Korea Shipbuilding & Offshore Engineering (009540), following its earnings release. Hanwha Ocean (042660) saw five firms cut targets, and Samsung Heavy Industries (010140) had three downward revisions. Among defense firms, nine securities firms lowered targets for Hyundai Rotem (064350) and Korea Aerospace Industries (047810\u00b7KAI) after their earnings disclosures, while Hanwha Aerospace (012450) \u2014 which reported results just before the weekend \u2014 saw seven firms cut targets during July. Only LIG Nex1 (079550), which has yet to report earnings, saw a number of firms raise their target prices recently.<\/p>\n
The moves stand in stark contrast to the relatively strong second-quarter results these companies delivered. The three shipbuilders \u2014 HD Korea Shipbuilding & Offshore Engineering, Hanwha Ocean, and Samsung Heavy Industries \u2014 generated a combined 2.71 trillion won (approximately $1.9 billion) in operating profit for the second quarter, up 76.9% from 1.53 trillion won (approximately $1.1 billion) in the same period a year earlier.<\/p>\n
Powered by a super-cycle that began years ago, HD Korea Shipbuilding & Offshore Engineering posted a quarterly record of 1.65 trillion won (approximately $1.1 billion), while Hanwha Ocean (formerly Daewoo Shipbuilding & Marine Engineering) delivered its best performance since joining the Hanwha Group with 736.1 billion won (approximately $512.4 million).<\/p>\n
Future work is also plentiful. As of end-June deliveries, the three shipbuilders’ combined order backlog reached $145.4 billion (~208.9 trillion won), comprising $76.1 billion (~109.3 trillion won) for HD Korea Shipbuilding & Offshore Engineering, $33.8 billion (~48.6 trillion won) for Hanwha Ocean, and $35.5 billion (~51 trillion won) for Samsung Heavy Industries. HD Korea Shipbuilding & Offshore Engineering said on its earnings call that it has secured 3.5 years of work.<\/p>\n
The defense sector tells a similar story. Hyundai Rotem’s second-quarter operating profit fell 9.7% year-over-year to 232.4 billion won (approximately $161.8 million), but its order backlog surpassed 30 trillion won (approximately $20.9 billion) for the first time ever. KAI’s operating profit dropped 43.1% to 48.4 billion won (approximately $33.7 million), though expectations remain high for KF-21 export deals in the second half.<\/p>\n
Industry leader Hanwha Aerospace joined the “1 trillion won club” for the first time with 1.37 trillion won (approximately $950.5 million) in operating profit. Including LIG Nex1’s consensus operating profit of 110.5 billion won (approximately $76.9 million), the four defense firms’ combined second-quarter operating profit is projected at 1.76 trillion won (approximately $1.2 billion), up about 37% from 1.28 trillion won (approximately $892.2 million) a year earlier.<\/p>\n
Defense order backlogs also total around 100 trillion won (approximately $69.6 billion), representing roughly three years of work. By company, Hanwha Aerospace’s ground defense division holds 38.3 trillion won (approximately $26.7 billion), KAI 25.75 trillion won (approximately $17.9 billion), LIG Nex1 (first quarter) 25.33 trillion won (approximately $17.6 billion), and Hyundai Rotem’s defense division 9.82 trillion won (approximately $6.8 billion) \u2014 for a combined 99.2 trillion won (approximately $69.1 billion).<\/p>\n
“New Wins Are Critical” \u2014 Overseas Orders Blocked by Security Blocs<\/p>\n
Despite strong results and ample work, sentiment toward these shipbuilding and defense names has cooled, reflecting both the broader market downturn and concerns about further business expansion. Analysts point out that the current boom reflects orders won years ago, while new growth drivers remain elusive. What’s needed, they say, is tangible progress converting the potential order pipeline and new business initiatives into actual contracts.<\/p>\n
Indeed, the shipbuilding and defense industries have recently shown signs of stalling in securing new growth engines. In commercial shipping, shipbuilders are holding up well thanks to the boom in energy vessel types like LNG carriers, but in the marine defense sector \u2014 earmarked as a future industry \u2014 and the Korea-U.S. shipbuilding cooperation project MASGA, new developments have been scarce.<\/p>\n
Worse, concerns are growing that order flows could be blocked by security blocs such as NATO. Hanwha Ocean and HD Hyundai Heavy Industries both pursued Canada’s 60 trillion won (approximately $41.8 billion) submarine program (CPSP) but lost out to Germany’s TKMS. After each failed to win Australia’s 10 trillion won (approximately $7.0 billion) frigate program in 2024, they joined forces as a team but have yet to produce results.<\/p>\n
The defense industry faces a similar situation. In May, Hanwha Aerospace lost Romania’s next-generation infantry fighting vehicle program to Germany’s Rheinmetall. Despite offering a higher localization plan than Rheinmetall in line with the EU’s “Buy European” stance, the company was shut out by the security bloc.<\/p>\n
IM Securities analyst Byun Yong-jin cut his target price for Hanwha Ocean by 19.8% to 134,000 won (approximately $93.28), explaining: “The company expanded its third plant in preparation for increased special-purpose vessel volume, but the failure to secure long-term orders has increased fixed-cost burdens. We lowered the target due to diminished expectations for the special vessel business.”<\/p>\n
The fading of MASGA project expectations compared with the immediate aftermath of the Trump administration’s second inauguration is another factor eroding growth sentiment. Uncertainty is also mounting as the U.S. Congress has blocked the administration’s push to allow overseas construction of ships needed for the project.<\/p>\n
Some also worry that excessive tensions from the U.S.-Iran war could actually shrink order opportunities for the defense industry. Hyundai Rotem’s tank deal with Iraq, for example, has reportedly been delayed due to internal political dynamics and fiscal strains from the Middle East conflict.<\/p>\n
A Hanwha Aerospace official said on the second-quarter earnings call: “Excessively high geopolitical tensions in the Middle East can be an obstacle to short-term orders. Current geopolitical risks are causing administrative procedures for procurement to take longer.”<\/p>\n
Experts: Local Footprints and Binding Contracts Are Key Variables<\/p>\n
That said, analysts note that the potential for new growth drivers remains intact, and overseas projects could ignite momentum if they materialize into actual orders. For shipbuilders, expectations are supported by forecasts that commercial vessel orders will hold up for years to come, along with growing enthusiasm for AI data centers as a new growth avenue.<\/p>\n
“Given NATO’s demand for localized weapons systems, a strategy of securing local production footholds will translate into long-term order growth,” said Korea Investment & Securities analyst Jang Nam-hyun. Eugene Investment & Securities analyst Yang Seung-yoon said of the shipbuilding sector: “Over the medium to long term, whether special vessel exports and data center projects convert into binding contracts will be the key point to watch.”<\/p>\n
Meanwhile, the three shipbuilders are accelerating their order pursuits in the second half. HD Korea Shipbuilding & Offshore Engineering is targeting follow-on Philippine naval vessel programs and Peru’s submarine project for Q3-Q4 orders this year. Its Saudi Arabia special vessel program has been delayed by the war, but the company expects orders from next year onward and plans to strengthen development and marketing of new models for specialized vessels such as icebreakers.<\/p>\n
Hanwha Ocean is pursuing domestic special vessel programs including the Korean next-generation destroyer (KDDX) and Jang Bogo-III Batch-II follow-on projects, as well as naval newbuild programs in the Middle East, Africa, Southeast Asia, South America, and Europe, along with U.S. Navy work. Samsung Heavy Industries plans to deliver visible results across various U.S. businesses, including floating data centers (FDC) and maintenance, repair, and overhaul (MRO).<\/p>\n
In particular, the three shipbuilders are seeking new growth drivers through entry into the U.S. market. The industry expects the MASGA initiative to accelerate U.S. market penetration as it moves into full implementation. The Korea-U.S. Shipbuilding Cooperation Center (KUSPC) recently launched in Washington, D.C., with bilateral cooperation now focused on shipyard modernization, supply chain development, and workforce training.<\/p>\n
Hanwha Ocean is exploring opportunities through Philly Shipyard, which it acquired last year. Philly Shipyard recently won a contract to build a U.S. Navy missile range instrumentation vessel (MRIV). While actual construction will take place at the Philadelphia-based yard, the deal opens the possibility for Hanwha Ocean to participate in design and production support. Hanwha Ocean plans to pursue synergies in design and operational support within the bounds permitted by U.S. law.<\/p>\n
With President Donald Trump having directly raised warship construction cooperation during his meeting with President Lee Jae-myung, expectations are building for various positive discussions, including the introduction of foreign-built warships. In related developments, the U.S. Department of Defense and Navy recently sent requests for information (RFIs) to HD Hyundai Heavy Industries and Hanwha Ocean, among others, to assess their design and construction capabilities for combat ships and oilers.<\/p>\n","protected":false},"excerpt":{"rendered":"South Korea’s three major shipbuilders posted a combined operating profit of 2.71 trillion won (approximately $1.9 billion) in…\n","protected":false},"author":2,"featured_media":107178,"comment_status":"","ping_status":"","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[28],"tags":[9984,31940,355,277,55297,354,55293,55292,55295,38065,55296,11697,55298,6770,35385,55294,367],"class_list":["post-107177","post","type-post","status-publish","format-standard","has-post-thumbnail","category-hanwha-aerospace","tag-eugene-investment-securities","tag-fnguide","tag-hanwha","tag-hanwha-aerospace","tag-hanwha-aerospace-012450","tag-hanwha-group","tag-hanwha-ocean-042660","tag-hd-hyundai-heavy-industries-009540","tag-hyundai-rotem-064350","tag-im-securities","tag-korea-aerospace-industries-kai047810","tag-korea-investment-securities","tag-lig-nex1-079550","tag-masga","tag-rheinmetall","tag-samsung-heavy-industries-010140","tag-tkms"],"_links":{"self":[{"href":"https:\/\/www.europesays.com\/korea\/wp-json\/wp\/v2\/posts\/107177","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.europesays.com\/korea\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.europesays.com\/korea\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.europesays.com\/korea\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/www.europesays.com\/korea\/wp-json\/wp\/v2\/comments?post=107177"}],"version-history":[{"count":0,"href":"https:\/\/www.europesays.com\/korea\/wp-json\/wp\/v2\/posts\/107177\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.europesays.com\/korea\/wp-json\/wp\/v2\/media\/107178"}],"wp:attachment":[{"href":"https:\/\/www.europesays.com\/korea\/wp-json\/wp\/v2\/media?parent=107177"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.europesays.com\/korea\/wp-json\/wp\/v2\/categories?post=107177"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.europesays.com\/korea\/wp-json\/wp\/v2\/tags?post=107177"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}