[Click e-Stock] "Hanwha Ocean: U.S. Market Entry and Earnings Growth Drive Investment Rating Upgrade"

Investment Rating Upgraded from 'Neutral' to 'Buy'
New Target Price Set at 114,000 Won

On June 12, Korea Investment & Securities upgraded its investment rating on Hanwha Ocean from 'neutral' to 'buy', reflecting the company's entry into the U.S. shipbuilding market and its earnings growth potential. The firm also set a new target price of 114,000 won.

Kang Kyungtae, a researcher at Korea Investment & Securities, stated, "We acknowledge both the U.S. government's willingness to collaborate on commercial and naval vessel construction and Hanwha Group's intention to enter the U.S. shipbuilding industry. As a result, we are raising our investment rating and setting a new target price of 114,000 won." He added, "Fifty-five percent (19.6 trillion won) of the company's fair value (35 trillion won) can be explained by its existing core business, while the remaining 45 percent is attributable to value generated by entering the U.S. commercial and naval vessel market."

The value of entering the U.S. shipbuilding market can be divided into two categories: the U.S. naval vessel newbuild market and the corporate value of Hanwha Philly Shipyard. Kang explained, "If a company funded by shareholders becomes the largest shareholder of Austal, an Australian shipbuilding and defense company, it could capture up to 15 percent of the U.S. naval vessel procurement budget over the next 30 years." He analyzed, "Taking this into account, the value of entering the U.S. naval vessel newbuild market is estimated at 12.4 trillion won." He continued, "Considering the expansion potential of the Jones Act market and the facility investment plans at Philly Shipyard, the corporate value of Philly Shipyard is estimated at 11.3 trillion won. Applying a 30 percent discount to Hanwha Ocean's 40 percent ownership stake, we added 3.2 trillion won to the equity value."

He also pointed out that attention should be paid to the growth potential of the company's core business. Kang said, "Hanwha Ocean's EBITDA is expected to grow by 36.5 percent in 2026, 37.4 percent in 2027, and 8.1 percent in 2028 compared to the previous year." He added, "Reflecting process stabilization and improvement in vessel type and vintage mix, we have raised our 2028 EBITDA estimate by 40.4 percent compared to previous forecasts."

Stock price adjustments due to overhang (potential shares for sale) are expected to present buying opportunities. Kang stated, "When stock price corrections occur due to two types of overhang?sale of common shares by the second-largest shareholder and conversion of Korea Eximbank's convertible bonds into common shares?these should be seen as buying opportunities." He explained, "Hanwha Ocean is the shipbuilder best positioned to respond quickly to the U.S. government's call for shipbuilding cooperation, and we expect order wins as related legislation is passed."