According to data released by Hanwha Ocean at the end of April, the company reported an operating profit of 52.9 billion won (about $38.68 million) and a net profit of 51 billion won (about $37.29 million) in the first quarter of this year. Although Hanwha Ocean returned to profitability in the first quarter of this year, the Korean industry expects profitability to deteriorate from 2025 as Hanwha Ocean has fewer orders to support future performance.
Return to profitability, but order selection strategies will become an obstacle to order taking?
Currently, South Korea’s three major shipbuilding giants HD Korea Shipbuilding & Offshore Engineering (HD KSOE), Hanwha Ocean and Samsung Heavy Industries (SHI) are all adopting an order- selection strategy that focuses on high-value-added ships. However, compared to the order intake of the other two shipbuilders, Hanwha Ocean’s order intake situation is not satisfactory. If the company’s order volume continues to decline, the order selection strategy is likely to become an obstacle for Hanwha Ocean to receive orders.
Hanwha Ocean is expected to continue its strong momentum through 2024, starting in the first quarter of this year, with its KRW 52.9 billion operating profit in the first quarter far exceeding the securities firm’s previous average estimate of KRW 14.4 billion, according to an analysis by the Korean securities industry.
The company said the improved first-quarter results were attributed to higher ship prices, increased capacity of high-value-added vessels such as liquefied natural gas (LNG) carriers, higher operating income, and improved profits and exchange rate effects.
Hanwha Ocean is expected to expand the proportion of orders for LNG carriers to 60% this year. Hanwha Ocean, as the only shipbuilder among the three major shipbuilding giants in South Korea that made a loss last year, has already started to make a profit in the first quarter of this year and is expected to join the ranks of the full-year profitability. However, the Korean industry predicts that from 2025 onwards, Hanwha Ocean’s sluggish order-taking status may have a negative impact on profitability.
In 2023, Hanwha Ocean received a total of $3.52 billion in newbuilding orders, of which only $1.9 billion was for merchant ships. In comparison, HD KSOE received $25.785 billion in newbuilding orders last year, of which $21.11 billion was for merchant vessels, far exceeding Hanwha Ocean.
As of the end of April this year, Hanwha Ocean has received $3.3 billion in orders for new ships, which is comparable to the order book for the whole year of 2023, including orders worth about $2.4 billion for the second phase of Qatar Energy’s ” Hundred Ships Program”.
As of the end of April this year, Hanwha Ocean has received $3.3 billion in orders for new ships, which is comparable to the order book for the whole year of 2023, including orders worth about $2.4 billion for the second phase of QatarEnergy’s ” Hundred Ships Program”. HD KSOE as early as 2023 has signed a contract, the cumulative order value of this year as of the end of April has exceeded $ 9 billion. Hanwha Ocean is still significantly behind.
Hanwha Ocean attributes this result to its order selection strategy. Under this strategy, Hanwha Ocean will not significantly increase its order book in the short term, but will focus on high value-added ships to ensure profitability while increasing construction volume.
Hanwha Ocean expects to expand orders for tankers such as Very Large Crude Carriers (VLCCs) as shipping companies are increasing their tanker orders and Chinese shipyards are running out of remaining slots, according to a report.
Will Hanwha Ocean’s new tanker market strategy work?
In February, Hanwha Ocean announced that it had signed a contract with DHT Holdings for two VLCC newbuildings, an order that included an option for additional orders, the exact number of which has not yet been disclosed.
This is Hanwha Ocean’s first VLCC newbuilding contract after three years since 2021, and it is a high-value-added contracted based on an order- selection strategy, which is said to have set the highest ship price since the global financial crisis in 2008.
However, it is unclear whether Hanwha Ocean’s strategy to develop the tanker market will work. The shipbuilding market is subject to many uncertainties due to various factors such as ship prices, environmental regulations, macroeconomics and financing.
In fact, after peaking in 2021, new ship orders have been on a downward trend. Some industry insiders predict that this year’s order book for container ships and LNG carriers will be less than that of last year. If the order book is lower than expected, Hanwha Ocean’s order slump may be prolonged. In addition, even if Hanwha Ocean’s new ship orders increase significantly this year, a short-term decline in operating results may be inevitable.
Hi Investment & Securities expects Hanwha Ocean to deliver 39 ships this year, 30 in 2025, and 25 in 2026, showing a downward trend year by year.