Operating profits in the second quarter (April–June) of this year for HD Hyundai Marine Engine and Hanwha Engine, corporations specializing in ship engines, are expected to increase by about 80% to 100% from the second quarter of last year. That is because high-priced engine volumes booked during the shipbuilding boom are now being reflected in results in earnest. The operating margin, a profitability indicator, is projected to reach two to three times last year's average for Korea's manufacturing sector.
There are also expectations that profits will rise further in the second half and next year. Chinese shipyards, which are scooping up global ship orders, are placing consecutive engine orders—the "heart" of ships—with these corporations.
◇ Second-quarter operating margin seen at 15%–24%… up to 3 times the manufacturing average
According to the securities consensus (average forecast) compiled by FnGuide on the 10th, HD Hyundai Marine Engine is expected to have posted 35.5 billion won in operating profit in the second quarter. That is a 103% increase from the second quarter of last year.
HD Hyundai Marine Engine's second-quarter operating margin is estimated at 24.2%, up 6.6 percentage points from the second quarter of last year (17.6%). That is more than three times last year's operating margin (6.9%) for Korea's manufacturing sector released by the Bank of Korea.
Hanwha Engine is expected to have logged 60.4 billion won in operating profit in the second quarter, up 78.8% from the second quarter of last year. The operating margin is forecast at 15.7%, up 7.0 percentage points from the second quarter of last year (8.7%).
Hanwha Engine (formerly HSD Engine) was incorporated into Hanwha Group in early 2024, and after recording a double-digit operating margin for the first time in the fourth quarter of last year, it is now expected to sustain a margin in the 10% range for three consecutive quarters.
Industry analysis says profitability improved as high-priced engine volumes booked in 2023–2024 began to be reflected in results in earnest. This period coincided with a super-boom in shipbuilding, when orders for high-margin dual-fuel (DF) engines poured in. For ship engines, it typically takes two to three years from order to delivery and final payment.
For HD Hyundai Marine Engine, about 75% of its order backlog as of April was from volumes booked in 2024. Bae Gi-yeon, an analyst at Meritz Securities, said, "After HD Hyundai Marine Engine (formerly STX Heavy Industries) completed its incorporation into HD Hyundai Group in July 2024, the increase in engine sales prices widened," and noted, "Profitability will begin to improve in earnest this year and next year as all volumes booked in 2023–2024 are fulfilled."
◇ Domestic big three shipbuilders' growth provides a springboard
Behind their growth is the boom for Korea's three major shipbuilders. According to FnGuide, the combined second-quarter operating profit of HD Hyundai Heavy Industries, Hanwha Ocean, and Samsung Heavy Industries is expected to be about 1.9 trillion won. That is an increase of around 81% from the second quarter of last year.
The second-quarter operating margins for the big three shipbuilders are each expected to top 10%. HD Hyundai Heavy Industries' second-quarter operating margin is projected at 15%, the highest among the three. Hanwha Ocean and Samsung Heavy Industries are expected at 14% and 12%, respectively.
The strong second-quarter results reflect deliveries of high value-added ships ordered two to three years ago. Because contracts are denominated in U.S. dollars, the high exchange rate at the time of recognition (weak won) also boosted profits. The won-dollar rate moved in the 1,300-won range in 2023–2024, but hovered around 1,500 won in the second quarter of this year.
Kang Kyung-tae, an analyst at Korea Investment & Securities Co., said, "For HD Hyundai Heavy Industries, we expect second-quarter results to be solid across merchant ships, offshore, and engine and machinery," and noted, "The exchange-rate effect across all business areas is estimated at 27 billion won in operating profit terms."
HD Hyundai Marine Engine, together with the engine and machinery division of HD Hyundai Heavy Industries, shares engine demand volumes from shipbuilders within the HD Hyundai group. In effect, it enjoys the order boom at the group's finished-ship affiliates.
HD Hyundai has a vertically integrated engine portfolio within the group, from large to small and midsize engines. The engine and machinery institutional sector of HD Hyundai Heavy Industries manufactures large engines that power large ships and medium engines (the in-house Himsen brand) used as generators for large vessels. HD Hyundai Marine Engine focuses on low-speed engines for ship propulsion.
An HD Hyundai official said, "Because engines are core components of ships, the group's shipbuilders procure engines from affiliates to ensure supply stability."
Among Korea's three major shipbuilders, Hanwha Ocean and Samsung Heavy Industries are in different situations. Hanwha Ocean sometimes purchases engines from HD Hyundai affiliates in addition to its affiliate Hanwha Engine. Because Hanwha Engine is strong in large low-speed engines for large vessels, it procures products for low-speed propulsion engines for small and midsize ships from HD Hyundai Marine Engine.
Samsung Heavy Industries does not have its own engine division or an engine-specialist affiliate. It relies heavily on procurement from Hanwha Engine. HSD Engine, the predecessor of Hanwha Engine, was a joint venture of Korea Heavy Industries (now Doosan Enerbility), Samsung Heavy Industries, and Daewoo Shipbuilding & Marine Engineering (now Hanwha Ocean). The arrangement under which HSD Engine handled Samsung Heavy Industries' large low-speed engine volumes has continued to this day. However, Samsung Heavy Industries has recently increased purchases from HD Hyundai affiliates, diversifying its sources.
◇ China, No. 1 in ship orders, sees surging demand for Korean engines
In particular, a flood of orders from Chinese shipyards is giving a big boost to results. Many of the orders are for dual-fuel (DF) engines, where Korea holds a technological edge. China has taken more than 70% of global ship orders this year.
According to data compiled by Clarksons Research, in the first half of this year (January–June), China recorded a 72% share, with 31 million CGT out of the global total of 42.95 million CGT in ship orders (compensated gross tonnage, reflecting ship size, construction difficulty, workload, and more). Korea ranked second with 7.97 million CGT (17%).
Of the 15 ship engine supply contracts HD Hyundai Marine Engine signed in the first half of this year, 12 were orders from Chinese shipyards, including Wuhu Shipyard and Xiamen Xiangyu Shipbuilding. About 74% of the total contract value (about 490 billion won) was for exports to China.
Hanwha Engine won about 45% (643.9 billion won) of its first-half ship engine supply contracts (total 1.4341 trillion won) from corporations in Asia. Hanwha Engine does not disclose clients, citing confidentiality clauses, but the shipbuilding industry assumes most Asian orders are from Chinese shipyards. In the securities market, there is a view that Hanwha Engine's quarterly operating profit will surpass 100 billion won next year.
An industry source said, "With carbon emission regulations, demand is increasing for dual-fuel propulsion ships using liquefied natural gas (LNG) and methanol, and Chinese shipyards are also installing Korean engines in terms of technology level and delivery time," and added, "When shipowners commission construction to Chinese shipyards, they often request Korean-made engines."