HD Hyundai Heavy Industries, riding the shipbuilding supercycle, reopened the era of 2 trillion won in annual operating profit for the first time in 13 years. Although fourth-quarter results last year fell short of market expectations as one-off factors such as merger expense were reflected, the company is assessed to have entered a profit growth trajectory for the full year as the benefits of winning high value-added ship orders began in earnest.
HD Hyundai Heavy Industries announced on the 9th that, on a consolidation basis last year, revenue rose 21.4% on-year to 17.5806 trillion won and operating profit surged 188.9% to 2.0375 trillion won. The merger with HD Hyundai Mipo, completed on Dec. 1 last year, also contributed to expanding scale and profitability as one month of results was reflected on a consolidated basis. It is the first time in 13 years, since the shipbuilding industry's peak in 2012, that HD Hyundai Heavy Industries' annual operating profit has exceeded 2 trillion won.
Fourth-quarter revenue came to 5.1931 trillion won and operating profit to 575 billion won. Compared with a year earlier, revenue increased 29.6% and operating profit 103.8%. Fourth-quarter operating profit fell about 22% short of the securities market consensus of 736.4 billion won. This was due to one-off expense in the thousands of billions of won, such as consolation payments and performance bonuses, incurred during the merger process with HD Hyundai Mipo at the end of last year and concentrated in the fourth quarter.
The core business of merchant ships (shipbuilding) sustained solid profitability and led results. In the fourth quarter, liquefied natural gas (LNG) carriers accounted for 48.4% of revenue, down slightly from the previous quarter, but the share of another high-profit vessel class, LPG and ammonia carriers (VLAC), rose to 32.2%, filling the gap. More than 80% of overall merchant-ship revenue was made up of high value-added gas carriers. In addition, a favorable exchange rate (strong dollar) added about 30 billion won in profit, supporting profitability.
The outlook for this year is brighter. With some one-off expense easing and higher ship prices reflected in revenue, observers say the earnings uptrend will continue. The securities market projects HD Hyundai Heavy Industries' revenue in the 23 trillion won range and operating profit in the mid-3 trillion won range this year. Compared with last year, revenue is expected to grow more than 30% and operating profit more than 60%.
Benefits are also expected from the U.S. Donald Trump administration's request for shipbuilding cooperation. HD Hyundai Heavy Industries has obtained eligibility for the U.S. Navy's maintenance, repair and overhaul (MRO) programs and is strengthening cooperation with local defense corporations such as Huntington Ingalls Industries, Inc. (HII). Han Seunghan, an analyst at SK Securities, said, "If the U.S. Navy Readiness Assurance Act is approved, there is a possibility of winning U.S. Navy ship orders," adding, "It is expected to move beyond a simple industry rebound and enter new markets such as defense."