[Click eStock] "HSD Engine, Ship Engine Price Increase... Expecting Future Sales of 2 Trillion Won"

Hana Financial Investment Report
Sales Recovery Expected Due to Ship Engine Price Increase

[Asia Economy Reporter Minji Lee] Hana Financial Investment forecasted on the 10th that HSD Engine could achieve sales in the 2 trillion KRW range due to rising prices of ship engines. The investment opinion remains a buy, with a target price maintained at 11,000 KRW.

Park Muhyun, a researcher at Hana Financial Investment, explained, "The advance payment ratio for ship engines of HSD Engine is increasing," adding, "This indicates that ship engine prices will rise." The proportion of ship engines in ship prices varies by ship type, ranging from 10 to 15%, and LNG/LPG propulsion engines are priced about 10 to 15% higher than conventional bunker oil diesel engines.

Currently, most of the ship orders being negotiated and contracted by shipyards are equipped with LNG/LPG propulsion engines, and ship engine prices are already on the rise. Due to the increasingly stringent environmental regulations in the shipping industry, changes in ship fuel, bans on the operation of open-type scrubbers, and defects in propulsion engines caused by the use of low-sulfur fuel oil, the advance payment ratio received by shipbuilding companies is also increasing. Researcher Park Muhyun stated, "The upward trend in ship engine prices will further boost HSD Engine's sales growth axis."

As both the increase in ship orders and the rise in engine prices occur simultaneously, HSD Engine's sales performance is expected to quickly recover to previous levels. HSD Engine's sales are projected to recover to 1 trillion KRW within the next 1 to 2 years, and if the engine production process fully recovers, sales performance is expected to increase to a maximum of 1.4 to 1.6 trillion KRW. HSD Engine recorded sales of 2 trillion KRW in 2011.

Researcher Park said, "Considering the nominal price increase and the higher advance payment ratio due to the shift to LNG/LPG propulsion engines, as well as additional new parts sales business, it will not take long for sales performance to recover to the 2 trillion KRW level again." The expected return on equity (ROE) is estimated to improve significantly from 4.7% this year to 14.1% next year.

He added, "The approximately 30,000 used ships worldwide will eventually all be replaced by dual-fuel propulsion ships, and ship replacement will be repeated several times," emphasizing, "This will greatly increase the demand for ship engines, significantly boosting HSD Engine's sales growth."