Yuanta Securities Korea evaluated on the 3rd that while it will be difficult for Korean shipbuilders to fully construct naval vessels, securing contracts for ship block construction could have a positive impact on revenue.
Kim Yong-min, a researcher at Yuanta Securities Korea, noted that the likelihood of the U.S. entrusting the entire naval vessel construction process to Korean shipbuilders is low. This is because, in a situation where the Donald Trump administration wants to revive American shipbuilding, it is unlikely to hand over naval vessels, which are the core operation of U.S. shipyards, to Korean shipyards.
Researcher Kim said, "The U.S. is expected to adopt a very conservative stance regarding the qualification for bid submissions of naval vessel construction contracts by overseas shipbuilders, including Korea, and we need to recognize that the reason the U.S. desires the Korean shipbuilding industry is not due to technological capability but production efficiency."
However, Researcher Kim explained that block construction can be undertaken by Korean shipyards. From the U.S. Navy's perspective, delivery and cost issues have been the most troublesome, and delegating block production to Korean shipbuilders can resolve these issues. Blocks are the basic units that make up the hull of a vessel. Typically, several blocks are manufactured in segments and then assembled to complete the hull.
Researcher Kim stated, "Even from the perspective of U.S. shipbuilders, there is no reason to refuse block production from Korean shipyards, which is a relatively high-value-added business, such as block assembly or the loading of weapons and systems, given that the advantage remains. Moreover, the threat of technology leakage from a security standpoint is eliminated."
Researcher Kim explained that securing only block construction contracts would be a welcome development for the Korean shipbuilding industry. First, if there are no concerns about technology leakage, the target contracts can expand from non-combat vessels to all vessels. The scale of naval vessel construction for the U.S. Navy over the next five years is estimated to be 89% for combat vessels and 11% for non-combat vessels in terms of costs.
As there are no confidential elements, Korean shipbuilders can also produce blocks at commercial shipyards (Yard, a large area within a shipyard for building or repairing ships). This means that current idle land can be utilized without expanding specialized shipbuilding docks (Dock). Additionally, considering that the construction costs in the U.S. are roughly six times more expensive than in Korea, high revenue can also be anticipated.
Given that Korean shipbuilders' stock prices have risen sharply, there is certainly a concern for profit-taking. Nevertheless, Researcher Kim said that if news related to naval vessel construction arises in the U.S. in the second half of this year, there is upward potential for stock prices. He noted, "After the second quarter results announcement (April to June), there may be short-term volatility in stock prices by individual stocks, but continued increases in profit margins and discussions regarding U.S. naval vessel construction are limiting factors for downside risks."