"US OBBBA Passes... Shipbuilding Overweight Maintained, Upward Triggers Remain Valid"

On July 8, Yuanta Securities maintained its recommendation to overweight the shipbuilding sector in the domestic stock market, in light of the recent final passage of the "One Big Beautiful Bill Act (OBBBA)"?which contains key policy agendas of U.S. President Donald Trump?by Congress. The firm assessed that triggers for a rise in defense-related U.S. Navy stocks in the second half of the year remain valid.

Kim Yongmin, a researcher at Yuanta Securities, stated in a report titled "The Will Revealed in the OBBBA" that "if you look at the section on 'strengthening the Department of Defense's shipbuilding resources' within the OBBBA, the budget for this item has increased by a total of $29 billion. The most significant increase is in the budget for the additional procurement of two destroyers and one nuclear submarine, among other vessels."

Kim emphasized, "This demonstrates the Trump administration's clear intention to restore naval power," adding, "The real issue, however, is the local situation, where ships cannot be built even with increased funding." He pointed out, "The mentioned destroyers and nuclear submarines are representative vessel types experiencing the most severe delivery delays," stressing that "this is the strongest basis for expecting progress in cooperation with Korean shipbuilders in the second half of the year."

However, Kim also noted, "Given the Trump administration's intention to support the domestic shipbuilding industry, the possibility of winning whole-ship construction contracts remains very limited." He suggested that Korean shipbuilders are more likely to secure contracts for block construction of naval vessels.

Accordingly, the recommendation to overweight the shipbuilding sector in the domestic stock market was maintained. Kim assessed, "Triggers for a rise in defense-related U.S. Navy stocks in the second half of the year remain valid, including negotiations leveraging bonded zones and still-low distribution prices for Chinese steel plates, and ultimately, orders for LNG carriers for U.S. and global LNG projects that 'must be placed.'"

Regarding last week's overall decline in shipbuilding stocks, Kim analyzed that it was due to: ▲ medium- to long-term profit decline concerns stemming from the potential for higher steel plate prices, ▲ a correction following short-term stock price increases, and ▲ the absence of momentum for LNG carrier orders. He also diagnosed that the recent surge in short selling and stock price correction of HD Korea Shipbuilding & Offshore Engineering should be viewed as a buying opportunity.