[Practical Finance] Semiconductor Stocks in the First Half, Shipbuilding Stocks in the Second Half

Samsung Electronics up 27%, SK Hynix up 44%, Hanmi Semiconductor surges 140%
Signaling turnaround to profitability, expectations for shipbuilding stocks to rise
Rising contract prices, falling raw material costs, solid order backlog

The stock market in the first half of this year can be summarized by the revival of semiconductor stocks. Although the performance of semiconductor stocks was worse than expected, the expectation of an industry rebound had a greater impact.

According to the Korea Exchange, among the KRX indices, the sector that rose the most this year until the 26th was KRX Semiconductor, which increased by 38.10%. Until last month, money was flowing into secondary battery stocks, and the KRX300 Materials sector recorded the highest increase rate at 37%. However, this month, semiconductor-related stocks rose rapidly, while profit-taking sell-offs poured out mainly from secondary battery stocks such as Ecopro (-26%), Ecopro BM (-10.86%), POSCO Future M (-8%), and LG Energy Solution (-2%), reversing the rankings.

Major memory semiconductor companies such as Samsung Electronics, SK Hynix, and Micron have started production cuts, but news that semiconductor demand is being secured centered on the AI industry and ultra-large products led to an upward trend. Poor performance did not affect stock prices. The expectation that performance would be poor throughout the first half of this year was already reflected in stock prices early on, continuing the sluggish trend throughout the second half of last year.

Looking at major stocks, Samsung Electronics, the leading semiconductor stock by market capitalization, rose about 27% to the 70,000 KRW level. SK Hynix rose more than 44% from the 70,000 KRW level to the 110,000 KRW level. Material, parts, and equipment companies also showed a unified upward trend without exception. Hanmi Semiconductor surged 140%, DB HiTek (68%), LX Semicon (56%), Hana Materials (45%), TES (43%), Haesung DS (44%), EO Technics (39%), Wonik IPS (29%), and Duksan Neolux (13.6%) all showed upward trends.

In particular, equipment maker Hanmi Semiconductor recorded a triple-digit increase, fueled by expectations that memory semiconductor manufacturers would increase orders for equipment capable of handling the process to boost AI semiconductor production. Minjung Kwak, a researcher at Hyundai Motor Securities, said, “Generative AI brought by Nvidia and OpenAI is likely to become the second internet network,” adding, “Demand for AI GPUs related to deep learning implementation and HBM is expected to increase, and demand for Hanmi Semiconductor’s TSV-TC bonding equipment used in the HBM process will steadily grow.”

The securities industry expects semiconductor stocks to rise further. Nvidia set its Q2 earnings guidance 50% higher than market expectations, raising hopes that companies will significantly increase AI-related investments. Seungwoo Lee, head of Eugene Investment & Securities, said, “Although DRAM prices remain stagnant, Nvidia raising its guidance implies that corporate investments will increase in the second half of the year, potentially boosting memory semiconductor demand,” adding, “However, the improvement in IT home appliance consumption by individual customers needs to be observed further.”

Semiconductor stocks’ Q2 earnings are expected to be poor as anticipated. According to financial information provider FnGuide, the operating loss of the semiconductor and related equipment sector estimated by three or more sources is 3.2117 trillion KRW for Q2, indicating a deficit compared to the same period last year. Among major stocks, SK Hynix is estimated to record a 3.2877 trillion KRW loss, and SK Square a 414.3 billion KRW loss in Q2.

During the Q2 earnings season, shipbuilding stocks are worth noting. The shipbuilding industry (Samsung Heavy Industries, HD Hyundai Heavy Industries, Daewoo Shipbuilding & Marine Engineering, Hyundai Mipo Dockyard, etc.) is expected to record an operating profit of 114.4 billion KRW in Q2, turning positive compared to a loss of 470.1 billion KRW in the same period last year and a loss of 112.1 billion KRW in the previous quarter. By stock, Samsung Heavy Industries (33.3 billion KRW) and HD Hyundai Heavy Industries (83.3 billion KRW) are expected to post profits compared to Q2 last year. Daewoo Shipbuilding & Marine Engineering and Hyundai Mipo Dockyard are estimated to record operating losses of 700 million KRW and 1.4 billion KRW respectively, significantly reducing the deficit compared to the same period.

In the case of shipbuilding stocks, the ongoing rise in ship prices and the process of recognizing existing orders as sales are expected to lead to improved performance. The fact that the rise in labor costs is not fast enough to damage company profits compared to ship prices, and the expectation that raw material prices will stabilize, limiting increases in steel plate prices, also support the outlook for improved shipbuilders’ performance. Jaeseon Yoo, a researcher at Hana Securities, explained, “Although the freight index has fallen, shipbuilders presented conservative order targets this year, but for LNG carriers, 20 out of 22 ships have been ordered, and container ships are recording stable figures supported by demand for replacing aging ships,” adding, “The rise in ship prices, unlike the freight index, is analyzed as reflecting future supply shortages.”

The stock market is already responding. Samsung Heavy Industries (10.85%), HD Hyundai Heavy Industries (8%), and Daewoo Shipbuilding & Marine Engineering (8.2%) have risen nearly 10% this month. Seunghan Han, a researcher at SK Securities, analyzed, “Following the post-COVID-19 global bottleneck and shipping boom, large-scale orders have been placed, accumulating more than three years of order backlog, and the new ship price index is continuously rising,” adding, “The strategy of existing shipbuilders to cut low-price orders and maintain selective orders focused on profitability will be reflected in performance.”