Korea Investment & Securities downgraded its investment opinion on Hanwha Ocean and HD Hyundai Heavy Industries to "neutral" on the 20th. This is because the stock prices have soared sharply, reaching a level where it is difficult to explain the valuation.
The biggest driving force behind the increase in stock prices for Hanwha Ocean and HD Hyundai Heavy Industries is the expectation of participating in the U.S. special vessel business. Donald Trump, when he was the President-elect, specifically mentioned cooperation with the South Korean shipbuilding industry. Hanwha Ocean's stock price rose 183% since the U.S. presidential election in November last year, while HD Hyundai Heavy Industries' stock price climbed 102% during the same period.
Kang Kyung-tae, a researcher at Korea Investment & Securities, noted that the situation where the U.S. government is willing to amend the law to open the shipbuilding market to allied countries is positive for Hanwha Ocean and HD Hyundai Heavy Industries.
Research Institute Kang said, "Hanwha Ocean has continuously invested in Hanwha Ocean USA International, which holds a 40% stake in the Philippines shipyard since the second half of last year, and this could be funding for facility investments such as dock expansion," adding that he predicts, "It will grow into a key yard connecting Huntington Ingalls and General Dynamics Electric Boats."
Research Institute Kang viewed that HD Hyundai Heavy Industries is more likely to assemble modules or blocks made in Ulsan rather than acquiring a local shipyard in the U.S. He also noted that HD Hyundai Heavy Industries' market capitalization is about 6 trillion won higher than Hanwha Ocean, which he considers appropriate when considering the value of the engine machinery institutional sector.
The issue is that even considering all these values, it is difficult to explain the current valuation, according to Research Institute Kang. He pointed out that "a cycle unprecedented in the special vessel sector has begun, and the market's expectations for Hanwha Ocean regarding U.S. shipbuilding are reasonable," but added that "despite using various measurable means, it is challenging to explain Hanwha Ocean's valuation at this time."
He continued, "There may be further upward movement in stock prices depending on the news flow that captures market attention, but if it is not explainable, I would lower the investment opinion and seek new ideas."
Research Institute Kang also stated about HD Hyundai Heavy Industries, "Even considering the value of the engine machinery institutional sector, there is no way to explain the current valuation other than through a multiple premium. The value measured for HD Hyundai Heavy Industries' entry into the U.S. market is only 4.3 trillion won, and even in the best-case scenario, the current stock price is expensive." He added, "It would be desirable to buy with assurance after the adjustment and increased potential."