As Germany's TKMS was selected as the preferred bidder for Canada's next submarine program (CPSP), valued at about 60 trillion won, an analysis said Hanwha Ocean's failure to win the order was driven more by geopolitical factors than product competitiveness. Since it waged a neck-and-neck contest with Germany in a North Atlantic Treaty Organization (NATO) member's submarine program—rare for a non-European company—its overseas order prospects are still seen as intact.
Lee Dong-heon, a research fellow at Shinhan Investment & Securities, said in a report on the 8th, "The Canadian government assessed that both companies met the operational requirements," and noted, "What decided the outcome this time was not performance, but geopolitical factors such as interoperability among NATO members and stronger ties in Europe's defense supply chain."
CPSP is a project to introduce up to 12 3,000-ton diesel submarines to replace four aging Victoria-class submarines. The total project cost, including construction and more than 30 years of maintenance, repair and overhaul (MRO), comes to as much as C$60 billion (about 60 trillion won). Since the shortlist was set in Aug. last year, Hanwha Ocean's Jang Bogo-III Batch II and Germany's TKMS 212CD have been in the final competition.
According to the report, Hanwha Ocean fought a close race until the end by putting forward a proven platform based on the South Korean Navy's operational deployment experience, a faster delivery schedule for the first boat in 2032 than its rival, and cooperation with more than 80 Canadian local corporations.
However, Germany emphasized security cooperation among Germany, Norway and Canada and strengthening Europe's defense supply chain, and it moved at the national level by even proposing to adjust domestic and Norwegian construction slots to deliver four boats by 2036.
Lee also said, "The timing of the announcement was right before the NATO summit, and it is interpreted as a political choice prioritizing NATO unity amid the Russian threat and Europe's rearmament phase," adding, "The industrial cooperation assessment, including industrial and technological benefits (ITB), also appears to reflect the European defense cooperation stance."
Although it failed to win the order, it actually proved its overseas competitiveness, he said. "A non-European company went toe-to-toe with Germany in a NATO member's submarine program, earning international validation for performance, delivery and price competitiveness," he said. "This experience will serve as a meaningful reference in follow-on programs such as Poland's Orka program, submarine exports to the Middle East and Southeast Asia, and North American MRO cooperation."
In the short term, a share-price correction looks unavoidable, as expectations for the order had been priced in. However, because this project had the character of an "option" that was not reflected in the existing corporate value, it is seen as a supply-demand issue following the end of the event, not a matter of damaged fundamentals.
Lee said, "Domestically, momentum in special-purpose vessels continues, including the KDDX detailed design and lead-ship construction projects, and the merchant ship institutional sector is also expected to keep improving earnings based on a solid order backlog," adding, "Maintain a buy view on share-price pullbacks."