On August 28, SK Securities maintained its 'Overweight' recommendation on the shipbuilding sector, stating that the MASGA (Make American Shipbuilding Great Again) project is expected to serve as a growth catalyst for at least five years and will not disappear in the short term. For top picks, the firm named HD Hyundai Heavy Industries and HD Hyundai Mipo, which recently announced a merger, and selected Hanwha Ocean as the next preferred stock.
In the report "Shipbuilding - MASGA Is Just Beginning" released on the same day, Han Seunghan, a researcher at SK Securities, stated, "Given the scale of the MASGA project at 150 billion dollars and the nature of the shipbuilding industry, which requires long-term facility investment, workforce supply, and supply chain establishment, it is a growth catalyst that will last for at least five years and will not disappear quickly."
The researcher added, "When the US-centric momentum fades, the merchant ship cycle driven by the replacement demand for eco-friendly and aging fleets, which were ordered in large quantities during the second supercycle, will inevitably return. Therefore, it is necessary to approach the shipbuilding sector from a mid- to long-term perspective," recommending an increased weighting.
Ahead of the launch of the Korea-US shipbuilding cooperation project 'MASGA,' HD Korea Shipbuilding & Offshore, the intermediate holding company of HD Hyundai's shipbuilding division, has initiated a business restructuring. The plan is to merge two of the three shipbuilding affiliates (HD Hyundai Heavy Industries and HD Hyundai Mipo) to enhance global competitiveness in the shipbuilding and defense sectors through economies of scale. The photos show the yards of HD Hyundai Heavy Industries (above) and HD Hyundai Mipo. Provided by HD Korea Shipbuilding & Offshore. Photo by Yonhap News
By company, the researcher selected HD Hyundai Heavy Industries and HD Hyundai Mipo as top picks, evaluating that the merger decision will enable an effective response to the MASGA project and increase the corporate value of HD Hyundai Group subsidiaries. The researcher explained that the key points of the merger are: ▲ leveraging the existing capabilities of HD Hyundai Heavy Industries and the small- and mid-sized yards of HD Hyundai Mipo to grow defense sales through domestic and overseas naval shipbuilding (with a target of 10 trillion won in defense sales by 2035); ▲ regaining market share by integrating major overseas operations centered on the Singapore subsidiary and developing competitive overseas yards.
He stated, "From the perspective of merger synergies, attention should be paid to the yard efficiency of HD Hyundai Mipo. For naval support ships, landing ships, frigates, and destroyers, the yards of HD Hyundai Mipo are more efficient than those of HD Hyundai Heavy Industries, which are specialized in large vessel construction." He further analyzed, "The merger of the two companies is the optimal combination of infrastructure to complement MRO and shipbuilding capabilities for naval vessels." He also judged, "HD Hyundai Heavy Industries is highly likely to win MRO and shipbuilding contracts for US Navy destroyers."
Regarding Hanwha Ocean, the next preferred stock, he highlighted that after the Korea-US summit, Hanwha Group announced a 5 billion dollar (approximately 7 trillion won) investment plan for Hanwha Philly Shipyard in Philadelphia as part of the MASGA project.
The researcher noted, "Through Hanwha Shipping, the company additionally ordered 10 MR tankers subject to the Jones Act and one US-built LNGC. Going forward, Hanwha Group, which has secured US-compliant ships and the LNG value chain, is expected to continue placing orders for US-built LNGCs," adding, "This should lead to an increase in the corporate value of Hanwha Group subsidiaries."
He also stated, "Hanwha Ocean and HD Hyundai Heavy Industries have been shortlisted, along with Germany's TKMS, for the 60 trillion won Canadian submarine project (CPSP)." He assessed that "Hanwha Ocean is more likely to win the project in terms of delivery (capacity), operations, and cooperation with local companies." He added, "If the order is secured in the future, it will act as a new share price momentum through upward revisions in earnings estimates."
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