Up 179% This Year... Engine Division Utilization Rate at 86.1% in Q1
Production Capacity Expansion Expected Amid Rising Engine Demand
As shipbuilding stocks are drawing attention as leading sectors in the domestic stock market, the share price of HD Hyundai Marine Engine, a company that manufactures ship engines, has reached an all-time high.
According to the financial investment industry on July 31, the share price of HD Hyundai Marine Engine has risen by 179% so far this year. This increase is higher than Hanwha Ocean’s 165% rise. During the same period, the KOSPI index rose by 36%. On the previous day, HD Hyundai Marine Engine hit a new record high during trading, reaching 69,200 won.
Institutional investors and foreign investors have purchased HD Hyundai Marine Engine shares worth 88.4 billion won and 18.9 billion won, respectively, so far this year. Their valuation gains have surpassed 80% and 100%, respectively.
HD Hyundai Marine Engine mainly produces diesel engines and dual-fuel engines. Dual-fuel engines, such as those using liquefied natural gas (LNG) and liquefied petroleum gas (LPG), are replacing traditional diesel engines. The largest shareholder, HD Korea Shipbuilding & Offshore Engineering, holds a 35.05% stake. In the first quarter of this year, the company posted sales of 83 billion won and operating profit of 10.3 billion won, up 35.3% and 64.4%, respectively, compared to the same period last year.
After the first quarter earnings announcement, the financial investment industry analyzed that HD Hyundai Marine Engine has entered a full-fledged growth phase. Um Kyungah, a researcher at Shin Young Securities, explained, “The first quarter operating profit margin rose to 12.4%. The engine division’s profit margin, which could not exceed 8% last year, climbed to 13%.” She added, “In the second half of this year, not only engine sales but also the supply of engine parts will increase, which will further improve profitability.”
One of HD Hyundai Marine Engine’s strengths is its ability to rapidly expand production capacity in response to increasing demand. There is a significant amount of idle land at existing production facilities, so it is expected that expanding capacity will not take much time. In the first quarter of this year, the engine division’s utilization rate was 86.1%. At the end of the first quarter, the order backlog stood at 832.5 billion won, which is equivalent to two years’ worth of sales based on the expected annual revenue. Yang Hyungmo, a researcher at DS Investment & Securities, analyzed, “Production capacity is estimated to be able to increase from the current 1.4 million horsepower to a maximum of 4 million horsepower. Considering internal group demand, competitors, and Chinese clients, there is a shortage of engine supply.” Based on rising engine prices, Yang expects that profit margins of over 15% are possible.
SK Securities estimated that HD Hyundai Marine Engine achieved sales of 93.3 billion won and operating profit of 12.4 billion won in the second quarter of this year. Han Seunghan, a researcher at SK Securities, explained, “Operating profit is likely to be in line with market expectations, and the engine division’s utilization rate in the second quarter appears to have remained at a similar level to the previous quarter, at 86%.” He added, “Both engine and parts deliveries increased compared to the first quarter, which likely led to higher sales and profits.”
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