Hanwha Ocean posted operating profit in the first quarter that beat market expectations, helped by a higher share of high-priced ships and favorable exchange rates. While a high-margin structure centered on liquefied natural gas (LNG) carriers continued, improved profitability in other vessel types, including very large crude carriers (VLCCs), also supported the results.
Hanwha Ocean said in a filing on the 27th that its first-quarter operating profit on a consolidation basis was 441.1 billion won, up 70.6% from a year earlier on a preliminary basis. The result exceeded the securities consensus (average forecast) of 375.0 billion won by 17.6%.
Revenue was 3.2099 trillion won, up 2.1% from a year earlier. However, it fell 3.4% from the previous quarter due to fewer working days and came in 2.4% below the securities consensus (3.2901 trillion won). Net profit during the same period was 500.0 billion won, up 131.8%. As of the end of March, net debt was 5.0702 trillion won, up 212.5 billion won from the end of last year.
The strong results are seen as stemming from increased revenue recognition from high-priced orders, combined with cost reductions and productivity gains. The share of LNG carriers secured in 2022, when prices were lower, decreased, while construction and revenue recognition for orders placed in 2024–2025 at higher prices increased, expanding profit margins.
On top of that, some ships were delivered earlier than scheduled thanks to productivity improvements, pulling forward the timing of profit recognition for high-priced vessels. Ship order contracts apply a heavy-tail method (a contract structure in which a smaller advance is received and a larger balance is paid upon delivery), which increases profit contribution at the time of delivery.
A favorable exchange rate also contributed to the results. Because most ship contracts are in dollars, if the won-dollar rate rises from the time of order, revenue and profit converted into won increase. While the average exchange rate at the time of Hanwha Ocean's past merchant ship orders was around 1,330 won, the average rate in the first quarter rose to 1,464 won. The securities market analyzed that this exchange rate effect alone increased first-quarter revenue by about 44.0 billion won and operating profit by about 15.0 billion won.
By division, the merchant ship division led the improvement. The division's revenue was 2.7945 trillion won, up 9% from a year earlier, and operating profit was 502.1 billion won, up 115%. The operating margin was 18%. While a high-revenue structure centered on LNG carriers was maintained, profitability appears to have improved as the share of orders placed in 2024–2025 at higher prices increased.
The special ship division kept revenue solid on the back of submarine and surface ship construction volumes, but profitability deteriorated. First-quarter special ship revenue was 318.3 billion won, up 5% from a year earlier but down 14% from the previous quarter. The operating loss was 20.8 billion won, swinging to a deficit from an operating profit of 41.3 billion won in the first quarter of last year, and the operating margin fell from 13.6% to -6.5%. Delayed recognition of additional contracts (CO) such as design changes to ships under construction, selling and administrative expenditure for overseas order pursuits, and fixed-cost burdens from preemptive capacity expansion had an impact.
The energy plant division saw revenue fall and losses widen due to the completion of existing project processes and delays in starting some projects. First-quarter revenue was 178.9 billion won, down 53% year over year and 57% quarter over quarter. The operating loss was 73.9 billion won, extending a deficit after a 17.8 billion won loss in the first quarter of last year. Hanwha Ocean said groundbreaking was delayed due to setbacks in securing permits and licenses for some projects, and fixed-cost burdens continued due to the deferral of new orders.
Hanwha Ocean expects the profitability improvement trend to continue as revenue recognition for high-priced merchant ship projects ramps up. The merchant ship division said that order demand remains solid for energy vessel types such as LNG carriers and VLCCs, due to changes in the global energy supply-demand structure and supply chain diversification. So far this year, Hanwha Ocean has won orders totaling $2.84 billion (about 4.18 trillion won) for four LNG carriers, 10 VLCCs and one wind turbine installation vessel (WTIV).
The special ship division is pursuing major projects such as the Canadian submarine program (CPSP) and the Korea Destroyer Next Generation (KDDX). The energy plant division also plans to continue order activities focused on product lines where it has competitiveness, including floating production, storage and offloading (FPSO) units, floating LNG production (FLNG) units, LNG modules, floating and fixed platforms, and WTIVs.