Brokerage : Hanwha Investment & Securities
Analyst : Seongjo Bae
Investment Rating : Buy (Maintained)
Target Price : KRW 175,000 (Raised)
Core Momentum : Substantial merchant margin surprise driven by the revenue recognition of high-price post-2024 orders and structural cost improvements across non-LNG vessel types, alongside upcoming defense milestones including KDDX order intake and Canadian CPSP preferred bidder selection
📊 1. [Valuation & Key Financial Metrics]
- Rating & Target Price: Buy Maintained, Target Price raised to KRW 175,000 by applying the existing Target P/E of 27x to revised 2027E EPS (Current Price: KRW 133,500 as of April 27, 2026; Upside potential: 31.1%)
- 1Q26 Earnings Summary: Revenue came in at KRW 3.21 trillion (+2.1% YoY) and Operating Profit stood at KRW 441.1 billion (+70.6% YoY, OPM 13.7%), beating market consensus by 17.6% on operating profit.
- Key Forecast Financials (2025 → 2026E → 2027E):
- Revenue: KRW 12.78 trillion → KRW 13.42 trillion → KRW 15.41 trillion
- Operating Profit: KRW 1.17 trillion → KRW 1.72 trillion → KRW 2.22 trillion
- EBITDA: KRW 1.40 trillion → KRW 2.03 trillion → KRW 2.63 trillion
- Net Profit (Controlling): KRW 1.25 trillion → KRW 1.58 trillion → KRW 1.99 trillion
- EPS: KRW 4,066 → KRW 5,144 → KRW 6,483
- Net Debt: KRW 5.00 trillion → KRW 4.71 trillion → KRW 3.86 trillion
- PER: 32.8x → 26.0x → 20.6x
- PBR: 6.6x → 5.3x → 4.2x
- ROE: 22.6% → 22.6% → 22.7%
- EV/EBITDA: 32.8x → 22.5x → 17.1x
🚀 2. [Market Opportunities & Business Outlook]
- Merchant Division Margin Outperformance: In 1Q26, the merchant shipbuilding division posted revenue of KRW 2.79 trillion (+8.8% YoY) and operating profit of KRW 502.1 billion (OPM 18.0%), offsetting fixed overhead from other divisions (such as the offshore energy plant unit’s operating loss of KRW 73.9 billion). Profitability was propelled by a confluence of drivers: expanded recognition of post-2024 high-price orders, favorable FX movements, cost structure optimization in non-LNG vessel segments, and early delivery efficiency via productivity improvements without material one-offs.
- Merchant Sales Mix Dynamics: While 2026 LNGC revenue exposure will moderate slightly to ~50% due to reduced lower-priced Qatar Phase 1 volume, average recognized vessel prices are expected to rise. Projected annual revenue share by order vintage stands at 10% for 2022, 20% for 2023, 40% for 2024, and 30% for 2025; steady early deliveries in 2Q–4Q will support high double-digit merchant margins.
- Special Ship Operations & Defense Catalysts: In 1Q26, the special ship division logged revenue of KRW 318.3 billion (+4.9% YoY) and an operating loss of KRW 20.8 billion (OPM -6.5%), reflecting ongoing builds for Changbogo-III Batch-II ship #2 and Ulsan-class Batch-III ships #5/6. Improving dock utilization via the KDDX contract within the year is essential to absorb fixed costs, while remaining C/Os from US MRO projects are slated for recognition in 2Q. The Canadian CPSP submarine program is a major catalyst, with preferred bidder selection slated for 1H26 and definitive contract signing in 2028.
📝 Editor’s Comment (Perspective)
The analyst views Hanwha Ocean as a shipbuilder demonstrating a fundamental margin breakthrough in its commercial shipbuilding division through the execution of high-price contract vintages and non-LNG cost restructuring, utilizing these core cash flows to offset fixed overhead in its naval business while upgrading earnings estimates. This perspective emphasizes the structural, recurring nature of the commercial margin expansion and the strategic valuation upside tied to upcoming defense milestones such as KDDX and the Canadian CPSP submarine tender.
To evaluate whether this investment thesis continues to materialize, key verification points include whether merchant operating margins remain near the 18% level as post-2024 order deliveries ramp up, the earnings recognition of remaining US naval MRO change orders in 2Q, and definitive tender milestones including the domestic KDDX contract and the 1H26 preferred bidder announcement for the Canadian CPSP submarine program. These factors can be monitored through future quarterly earnings releases, official IR materials, regulatory filings, and periodic financial reports.
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