As demand for power generation engines for artificial intelligence (AI) data centers grows, ship engine manufacturers are accelerating moves to expand into the onshore power market. HD Hyundai Heavy Industries is pushing a system to specialize in producing engines separately for ships and onshore power, and Hanwha Engine has also begun in earnest to produce engines that can be used for onshore power. As the technology and production base long built in ship engines rapidly expands into the AI data center power market, the pace of orders and commercialization for data center engines is emerging as a variable that will determine future growth and valuation.
◇ As onshore power demand rises, engine production systems are reshaped
According to the industry on the 6th, HD Hyundai Heavy Industries plans to reorganize the "Himsen engine" production system by application by linking the Ulsan engine plant, the Mokpo plant of its subsidiary HD Hyundai Engine in South Jeolla Province, and a plant to be newly built. The Himsen engine is a four-stroke medium-speed engine independently developed by HD Hyundai Heavy Industries and is used not only for ships but also for onshore power such as data centers.
HD Hyundai affiliates are currently producing Himsen engines for both ships and onshore power in Ulsan and Mokpo. The plan is to increase capacity and divide roles by hub to specialize production of engines for ships and for onshore power.
Ship engines are broadly divided into two-stroke low-speed engines and four-stroke medium-speed engines. Two-stroke and four-stroke refer to how many times the piston moves—two and four times, respectively—during one operating cycle of the engine. Two-stroke low-speed engines mainly turn the propellers of large ships to move the vessel, and four-stroke medium-speed engines like the Himsen are used for onboard power generation or propulsion of small and midsize ships. Installing these medium-speed engines on land to run generators can also supply power to data centers. The term "medium-speed engine" is taken from the speed at which the engine rotates, not the speed at which the ship moves.
The production system is being overhauled to respond to rising demand for engines for onshore power and to improve production efficiency. In particular, more customers at data centers are seeking higher-output engines, creating a need for a parts procurement system different from that of existing engines. The additional production facilities will adopt an integrated production system, and in-house production of key equipment will also increase. On an earnings conference call on the 29th of last month, HD Hyundai Heavy Industries said, "Customers prefer high-output engines," and added, "Because this is a different ecosystem from the past, we are even considering ways to develop the supply chain together."
Demand for engines for onshore power has grown rapidly due to a shortage in power equipment supply. Orders have piled up for large gas turbines, the core equipment for gas-fired power generation at AI data centers, pushing delivery lead times at major companies back as far as 2030. As a result, installing multiple medium-speed engines instead of waiting for gas turbines has emerged as an alternative to secure the needed power. An industry official said, "Lead times for medium-speed engines are currently more than a year faster than for large gas turbines," adding, "Because of this, demand for onshore power engines for data centers is expected to continue rising, making capacity expansion essential."
◇ HD Hyundai Heavy Industries secures orders… Hanwha starts production
Himsen engines for onshore power have already become a cash cow for HD Hyundai Heavy Industries. In the second quarter, the engine and machinery division posted operating profit of 236.4 billion won, accounting for about 23% of the companywide operating profit of 1.0399 trillion won. The operating margin was 24.8%, up 6.9 percentage points from a year earlier. An HD Hyundai Heavy Industries official said, "Sales of Himsen engines, including for onshore power, stood out."
Orders have also begun in the U.S. data center market. In April, a contract was signed with Aperion Energy Group (AEG), a U.S. energy infrastructure developer, to supply a total of 684 MW of power generation facilities based on 20-megawatt (MW) Himsen engines for 627.1 billion won. This is the first power generation engine contract that HD Hyundai Heavy Industries has won in the U.S. data center market, and the revenue is expected to be recognized sequentially from 2028 to 2030.
Hanwha Engine is also ramping up production of four-stroke medium-speed engines. In the second quarter of this year, it completed facilities capable of producing up to 180 units annually and began assembling the first engines. Starting in the third quarter, it plans to begin initial testing and product deliveries. Production is based on technology from German engine maker Everuns, and more than half of the new capacity is expected to be allocated first to ships, with the remainder used for onshore power and other applications.
The market is reflecting the pace of commercialization of data center engines in corporate valuation. Yuanta Securities Korea cited expansion of medium-speed engines for AI data centers as one of the drivers of HD Hyundai Heavy Industries' share price, applying a price-earnings ratio (PER) of 25 to the engine institutional sector and valuing it at 15 trillion won. In contrast, Daol Investment & Securities lowered the appropriate PER to 25 from 30, reflecting, among other factors, the view that Hanwha Engine's commercialization of data center engines will lag behind HD Hyundai Heavy Industries. It also cut the target price to 91,000 won from 112,000 won.