[Click eStock] HSD Engine, Growth Expectations 'UP' with Shipyard's 'Qatar Jackpot'

Hana Financial Investment Report, Target Price 7,000 KRW
Engine Supply Plans for Samsung Heavy Industries and Daewoo Shipbuilding & Marine Engineering

[Asia Economy Reporter Minji Lee] Hana Financial Investment maintained its buy rating on HSD Engine and kept the target price at 7,000 KRW on the 18th. This is based on the expectation that the stock price will show an upward trend due to the favorable LNG ship orders from domestic shipyards and improved cash flow.

HSD Engine, which supplies engines for ships, is expected to achieve sales growth due to LNG ship orders from Korean shipyards. The delivery of the first Qatar LNG ship is anticipated around 2023, and the signing of the main LNG ship contracts between Korean shipyards and Qatar is predicted to occur by August this year at the latest. Leading overseas specialized media expect Korean shipyards to secure 45 LNG ships each.

Additionally, the main contract for the Mozambique LNG ship orders, with slots reserved for 8 ships each at Samsung Heavy Industries and Hyundai Heavy Industries, is expected to be signed this fall. HSD Engine targets Samsung Heavy Industries and Daewoo Shipbuilding & Marine Engineering as its clients, and the total LNG ship orders from these two shipyards for Qatar are expected to reach about 90 vessels.

The improvement in cash flow is also noteworthy. In the first quarter, the company recorded operating cash flow of 35 billion KRW, the highest level in the past 20 quarters. It is forecasted that HSD Engine’s cumulative operating cash flow will reach around 50 billion KRW by the end of this year.

Park Muhyun, a researcher at Hana Financial Investment, stated, “As the order backlog of shipyards is being filled mainly with core vessels, HSD Engine’s sales growth is steadily increasing,” adding, “Sales growth centered on core vessels can lead to stable collection of accounts receivable, so HSD Engine’s cash flow will improve further over time.” The company’s net borrowings stood at about 180 billion KRW at the end of the first quarter this year and are expected to decrease to around 150 to 160 billion KRW by the end of the year.