As Donald Trump is highlighted as a beneficiary for U.S. President-elect stocks, domestic shipbuilding stocks are gaining attention, but among the 'big three' shipbuilders – including HD Hyundai Heavy Industries, Hanwha Ocean, and Samsung Heavy Industries – only Samsung Heavy Industries is showing a notably poor performance. Securities analysts cited a relatively low foreign exchange profit and the absence of defense business as the background for Samsung Heavy Industries' lone weakness, Chosun Biz said in its article.
According to the Korea Exchange on the 28th, from December 2nd to 27th, the stock price of HD Hyundai Heavy Industries rose 31.6%, from 220,000 won to 289,500 won, despite the chaotic domestic stock market situation. During the same period, Hanwha Ocean's stock price also increased by 5.4% (from 35,000 won to 36,900 won). However, Samsung Heavy Industries fell by 2.7%, from 11,620 won to 11,310 won.
Shipbuilders have been spotlighted as 'Trump beneficiaries' since early last month when the establishment of the Trump second administration was confirmed. The successful re-election of the Trump administration is expected to encourage energy development in the U.S. and expand liquefied natural gas (LNG) export facilities, leading to an expectation of increased orders.
Additionally, on the 19th of this month (local time), the U.S. Congress proposed a shipbuilding bill that indicates a desire to strengthen its domestic shipbuilding industry through cooperation with allies. This, combined with expectations for collaboration on shipbuilding investments from the Indian government, has strengthened domestic shipbuilding stocks. On the 27th, when the National Assembly voted on the impeachment motion against acting President Han Duck-soo, the Korean stock market wavered overall, causing shipbuilders to falter, but compared to the beginning of this month, stock prices remain high.
However, among the big three, Samsung Heavy Industries appears to be receiving less upward momentum. Although its stock price has shown an upward trend since mid-month, the increase is not as significant compared to the other two shipbuilders. Analysts believe that this is due to the weaker expectations for earnings growth compared to other shipbuilders.
According to the earnings consensus from financial information provider FnGuide, Samsung Heavy Industries’ operating profit for this year is predicted to increase by 103.47% from the previous year to 474.7 billion won. This is less than half of HD Hyundai Heavy Industries' projected operating profit increase of 274.24% (668.4 billion won). Moreover, Hanwha Ocean is expected to report a turnaround to an operating profit of 156.7 billion won from an operating loss of 196.5 billion won.
One background for the relatively weak performance expectations for Samsung Heavy Industries is attributed to the company's insistence on a 100% foreign exchange hedging strategy. Most customers of shipbuilders are foreign shipowners who sign construction contracts in U.S. dollars. Domestic shipbuilders, with a high export ratio, can achieve increased revenue when the exchange rate increases against the U.S. dollar.
However, Samsung Heavy Industries hedges the risks associated with exchange rate fluctuations by selling forward contracts—derivative products—through 16 financial institutions. Consequently, with the won-dollar exchange rate surpassing 1,480 won (as of December 27 during the trading period), Samsung Heavy Industries finds itself unable to benefit from foreign exchange profit. In contrast, HD Hyundai Heavy Industries and Hanwha Ocean have hedged at levels of around 70–80%, allowing for greater foreign exchange profit.
Another reason cited for the sluggish stock price increase is that Samsung Heavy Industries does not operate a defense business. President-elect Trump noted during a phone call with President Yoon Suk-yeol on the 7th of last month, "I know well about Korea's world-class warships and shipbuilding capabilities, and we need to closely cooperate with Korea not only for our ship exports but also in the maintenance, repair, and overhaul (MRO) field." This has increased interest in U.S. Navy vessel maintenance, repair, and overhaul (MRO) projects.
Currently, among domestic major shipbuilders, only HD Hyundai Heavy Industries and Hanwha Ocean are operating maritime defense businesses. Hanwha Ocean is expected to be the first among domestic shipbuilders to win a contract for the U.S. Navy’s MRO business this year. Analysts suggest that Samsung Heavy Industries is likely to receive less related benefits following Trump's administration since it mainly focuses on orders for ultra-large container ships and LNG carriers. It is reported that about 65% of Samsung Heavy Industries' order backlog is related to gas carriers such as LNG.
Beom Yong-jin, a researcher at iM Securities, stated, "Samsung Heavy Industries does not engage in businesses such as special vessels and engine machinery, where current competitors are receiving premiums, and only shows a stable trend in its main business, which is the commercial ship sector."
The differences in expectations are also evident in foreign investor supply. This month, foreign investors net bought 59.1 billion won in HD Hyundai Heavy Industries, while net selling 18.1 billion won in Samsung Heavy Industries. Hanwha Ocean sold a smaller amount, netting 17 billion won.
Han Young-soo, a researcher at Samsung Securities, remarked, "HD Hyundai Heavy Industries shows a performance differentiation compared to competitors in the engine and maritime defense themes, while Hanwha Ocean, despite somewhat slower performance improvement compared to competitors, is reflecting expectations for its maritime defense business and new business investments in its stock price."
One researcher noted, "Compared to competitors, Samsung Heavy Industries has a smaller physical yard size (shipbuilding ground) and limited group affiliates that can create synergies, which is a weakness. However, it is trying to overcome this through a strategy of simplifying sales with a few key products such as LNG carriers and container ships, as well as discovering local partners in China."