Shipbuilding 'Supercycle'... Hanwha Ocean, the Only Loss-Making Among the Top 3 Shipbuilders (Comprehensive)

96 Billion KRW Operating Loss Recorded in Q2
"One-Time Cost Increase Prevented Continued Profit"
'Deficit Construction' Volume Nearly Resolved by Second Half of Next Year
"KDDX, Ulsan-Class Batch-IV Project Is the Best Effort"

Hanwha Ocean recorded a loss in the second quarter, the only one among the top three shipbuilders despite the strong performance in the shipbuilding industry.

Exterior view of Hanwha Ocean Dock 1, where LNG carriers are being produced repeatedly.
[Photo by Hanwha Ocean]

Hanwha Ocean announced on the 26th that it posted sales of 2.5361 trillion KRW and an operating loss of 9.6 billion KRW in the second quarter. Compared to the same period last year, sales rose 39.3% and operating profit increased by 94%, showing a solid performance, but operating profit turned to a loss compared to the previous quarter.

In the Q2 earnings conference call on the 26th, Hanwha Ocean explained, "Sales increased by 11.1% due to the continued growth in construction volume since the first quarter, but the positive trend from the previous quarter was not maintained due to approximately 140 billion KRW in one-time costs, including production schedule adjustments and social costs in the merchant ship division."

The merchant ship division, which accounts for 83% of total sales, recorded sales of 2.112 trillion KRW, up 8.6% from the previous quarter as the proportion of high-priced LNGC orders continued to increase. However, due to production schedule adjustments and increased outsourcing costs reflecting production stabilization expenses, it posted an operating loss of 43.4 billion KRW, turning to a deficit. Hanwha Ocean forecasted, "As large container ships already ordered are delivered and high-priced LNG carriers are built in the second half, the company expects to record an overall profit for the year."

Considering the high level of order backlog, the merchant ship division plans to continue selective orders focused on profitability in the second half. Hanwha Ocean stated, "We are securing profitability by leveraging a strategy of faster delivery compared to other companies," and added, "In the second half, we will continue to secure orders steadily due to increased demand for LNG carriers driven by strengthened environmental regulations and a rise in container ship orders." They also said, "There are many projects under negotiation, including LNG carriers and large container ships," and "We expect to maintain an order backlog of two and a half to three years while securing new orders."

Regarding the slower order pace compared to other companies, they explained, "From last year through early this year, we were unable to complete block assembly in the preliminary stages, causing difficulties in the subsequent stages beyond expectations," and added, "We expect issues caused by manpower shortages in the process to be resolved within the second half." They also anticipated that more than 90% of the 'loss-making projects' carried over from the Daewoo Shipbuilding & Marine Engineering era will be delivered by the first half of next year, mostly resolving the issue.

Perspective view of Hanwha Ocean LNG carrier.
[Photo by Hanwha Ocean]

The special ship division posted sales of 328.9 billion KRW and an operating profit of 73.4 billion KRW. Hanwha Ocean said, "This quarter’s performance improved significantly compared to the previous quarter, which saw a sharp drop in sales due to an increase in estimated contract prices reflecting rising costs of ongoing projects," and added, "Although sales may decline in the third quarter due to a base effect, we expect stable sales through the end of the year, centered on submarine and MRO (maintenance, repair, and overhaul) businesses."

The offshore division recorded sales of 199 billion KRW and an operating loss of 47.6 billion KRW. Sales declined due to production process adjustments aimed at stabilizing production. In the second half, sales are expected to gradually recover through the fourth quarter as revenue recognition for FP, FCS, and offshore wind power products accelerates.

Regarding the ongoing construction project for the Ulsan-class Batch-IV ship, they emphasized, "Since the bid announcement on the 4th, we have formed a dedicated task force (TF) to prepare the bid documents and respond accordingly." About the Korean Destroyer Experimental (KDDX) lead ship project, they said, "No decision has been made yet between sole-source and competitive bidding, but we will do our best in line with policy."

Meanwhile, Hanwha Ocean is making aggressive investments to strengthen global competitiveness. By acquiring shares in NextDecade, they plan to expand business opportunities from LNG sales and transportation to necessary shipbuilding at NextDecade’s export terminal. Recently, they acquired a U.S. shipyard in the Philippines, establishing a foothold for full-scale entry into the world’s largest defense market. Additionally, by acquiring shares in Dyna-Mac, a Singapore-based marine structure specialist, they secured price competitiveness and gained an advantageous position in overseas bids.