[Click eStock] "Hanwha Engine, Faster Turnaround Than Expected"

Meritz Securities announced on the 24th that Hanwha Engine is showing a faster-than-expected turnaround.

Hanwha Engine recorded sales of 293.4 billion KRW and an operating profit of 19.4 billion KRW in the first quarter. The operating profit margin improved by 4.6 percentage points (p) year-on-year to 6.6%. It posted a surprise by exceeding the operating profit consensus of 7 billion KRW by 177.5%. Pre-tax profit was 18.6 billion KRW, and net profit was 14.9 billion KRW.

The actual sales exceeded estimates by 24.9%, which was analyzed to be due to additional volume for Hanwha Ocean. The actual first-quarter sales and operating profit surpassed Meritz Securities’ estimates by 24.9% and 367.5%, respectively, marking a surprise. There was an error of about 4 units in estimating the delivery volume to Hanwha Ocean, attributed to changes in the delivery schedule. The delivery volume to the four major customers in the first quarter was estimated at 23 units, about 4 units more than the previous estimate.

The actual operating profit exceeded estimates by 367.5%, which was analyzed to be due to structural price increases and mix improvement. The resolution of low-priced orders and profitability improvement from the expansion of the DF (Dual Fuel) engine ratio were confirmed earlier than initially expected in the second quarter. This marked the first time since the third quarter of 2012 that the operating profit margin exceeded 5%. The warming of the upstream industry was confirmed. It was estimated that the prices of new ships equipped with 2-stroke low-speed engines delivered by Hanwha Engine in the first quarter rose by 9.4% year-on-year.

Research analysts Baek Gi-yeon and Oh Jeong-ha of Meritz Securities said, "Since the price levels of ships scheduled for delivery equipped with Hanwha Engine’s marine engines are showing an upward trend, further profitability improvement is expected," adding, "Based on new orders from 2021 to 2023, the proportion of DF engines has expanded from 55% to 95%, so the product mix improvement effect is expected to act as an additional factor for profitability improvement."