The three major shipbuilders (HD Hyundai Heavy Industries, Hanwha Ocean, Samsung Heavy Industries) all posted double-digit operating margins in the second quarter. Profitability is seen to have improved as high-priced ships, such as liquefied natural gas (LNG) carriers booked several years ago in the mainline merchant ship business, began to be fully reflected in revenue.
By company, HD Hyundai Heavy Industries and Hanwha Ocean posted operating margins of around 15%, while Samsung Heavy Industries was slightly above 10%. In the shipbuilding and securities industries, differences in the ratio of foreign exchange hedging (fixing the exchange rate to be applied in the future to avoid risks from exchange rate fluctuations) are cited as a major reason for the operating margin gap.
It typically takes three to four years from a shipbuilding contract to delivery, and revenue and profit are recognized sequentially according to the progress rate. Analysts say Samsung Heavy Industries, which used a 100% FX hedging strategy, did not benefit from the strong dollar (weak won) that has persisted since the fourth quarter of 2024.
According to the shipbuilding industry on the 31st, HD Hyundai Heavy Industries posted second-quarter revenue of 6.3322 trillion won, operating profit of 1.0399 trillion won, and an operating margin of 16.4%. Hanwha Ocean's second-quarter revenue was 5.4432 trillion won, operating profit was 736.1 billion won, and the operating margin was 13.5%. Samsung Heavy Industries posted second-quarter revenue of 3.2307 trillion won, operating profit of 325 billion won, and an operating margin of 10.1%.
Samsung Heavy Industries uses a strategy of 100% FX hedging at the time of order. It fixes the rate at the exchange rate at the time of the contract.
Because shipbuilders sign shipbuilding contracts in dollars, a rise in the won-dollar exchange rate (a weaker won) is a boon for results. If the exchange rate rises after the contract, the won-converted value of the remaining dollar payments increases.
About half of the volumes recognized in Samsung Heavy Industries' second-quarter results were tied to when the exchange rate hovered around 1,300 won in 2022–2023. In its earnings presentation, Samsung Heavy Industries said about 20% of second-quarter revenue reflected orders from 2022 and about 30% from 2023.
The average annual exchange rates in 2022 and 2023 were 1,292 won and 1,305 won, respectively. Considering that the average exchange rate in this year's second quarter was 1,502 won, the company effectively missed out on the exchange rate gains due to hedging.
Samsung Heavy Industries said it expects to see FX benefits once volumes contracted in 2024–2026, when the exchange rate was in the mid-1,400 to 1,500 won range, begin to be reflected in revenue. For example, two LNG carriers ordered in Jun. 2023 for delivery in Feb. 2028 were booked at an exchange rate of 1,294.9 won. By contrast, an LNG carrier ordered last month for delivery in Jan. 2029 was booked at an exchange rate of 1,528.6 won.
Bae Gi-yeon, an analyst at Meritz Securities, said, "Samsung Heavy Industries still has workloads tied to exchange rates around 1,300 won due to its 100% FX hedging policy, which is why its profitability is lower than rivals," adding, "Once workloads ordered in the 1,400–1,500 won range are reflected, the relative weakness will be resolved."
In the shipbuilding and securities industries, HD Hyundai Heavy Industries' FX hedge ratio is estimated at about 75%, and Hanwha Ocean's at about 10%.
Hanwha Ocean posted a record-high operating margin of 22.7% in the merchant ship institutional sector in the second quarter. By revenue share, orders from 2024 accounted for half, and orders from 2023 and 2025 each accounted for 25%. In effect, the exchange rate rise generated gains under a largely unhedged structure.
However, Hanwha Ocean said that beyond the exchange rate effect, cost improvements from productivity gains and design optimization also led to better profitability.