[Korea Ratings Webcast ④] "Hanwha Group's Defense and Shipbuilding Profitability Rises, but Financial Burden Increases"

On May 8, Korea Ratings analyzed that while Hanwha Group's overall profitability is improving due to enhanced profit generation in its defense and shipbuilding businesses, its financial burden is increasing as a result of continued large-scale investments.

Ryu Yeonju, Senior Analyst at Korea Ratings, provided this explanation during a webcast reviewing credit issues for POSCO, Lotte, SK, and Hanwha Group on the same day.

Despite weak performance in the chemical and solar energy sectors last year, Hanwha Group's operating profitability improved thanks to increased profit generation in the defense, construction, and shipbuilding sectors. The analyst expects this improvement to continue for some time. Ryu Yeonju stated, "While the chemical business is expected to continue underperforming, there is a possibility of a rebound in the solar business. Considering the structurally improved profitability trend driven by increased order backlogs in the defense, construction, and shipbuilding sectors, the group should be able to maintain its enhanced profit generation."

Although profit generation has increased, it was assessed that the financial burden has also grown due to large-scale investments, particularly in shipbuilding, since 2023. She explained, "The group’s total net borrowings increased from 15.9 trillion won at the end of 2022 to 30.5 trillion won at the end of 2024, and key financial stability indicators such as the debt ratio have also deteriorated. Given the group’s expansionary investment stance, the heightened borrowing burden is expected to persist for the time being."

Korea Ratings forecasts that Hanwha Group’s financial burden should remain manageable, considering its cash generation capability. She noted, "Efforts to improve the financial structure, such as the sale of idle land by Hanwha Solutions, capital raising plans including Hanwha Aerospace’s rights offering and Hanwha Energy’s IPO review, and cash generation from the defense and shipbuilding sectors, are expected to enable the group to appropriately control its financial burden."

However, she also predicted that if the financial burden continues due to increased borrowings, it could affect the group’s credit rating. She explained, "The increase in Hanwha Group’s borrowing burden over the past two to three years is partly due to underperformance in the chemical business, but it also stems from expanding future growth bases in defense, solar, and shipbuilding. In fact, these investments have allowed Hanwha Group to enhance the diversification of its business portfolio, and with favorable market conditions and increased order backlogs in defense and shipbuilding, the group is now positioned to expect stable cash flows."

She added, "Overall, the strategic direction of investments aimed at building a long-term growth foundation is recognized. However, the actual improvement in cash generation and the pace at which the already increased financial burden is alleviated will determine the group’s overall creditworthiness."

Additionally, considering Hanwha Systems’ acquisition of Austal in Australia and Hanwha Hotels & Resorts’ planned acquisition of Ourhome, the scale of scheduled investments is significant. Therefore, she emphasized the need for a group-level review. She stated, "Given the substantial investment scale, it will not be easy to alleviate the heightened financial burden in the short term. It is now necessary to review the balance between the group’s cash generation and investment requirements."