Samsung Heavy Industries struggles as other shipbuilders
As the U.S. gears up for a new administration under President-elect Donald Trump, the shipbuilding industry is experiencing a wave of attention. Investors are keenly observing the performance of domestic shipbuilding stocks, particularly those of the “big three” shipbuilders: HD Hyundai Heavy Industries, Hanwha Ocean, and Samsung Heavy Industries. While HD Hyundai and Hanwha Ocean are enjoying significant gains, Samsung Heavy Industries is struggling to keep pace. Analysts attribute this disparity to various factors, including foreign exchange profits and the absence of a defense business for Samsung.
The Surge of HD Hyundai and Hanwha Ocean
Recent data from the Korea Exchange highlights a remarkable rise in stock prices for HD Hyundai Heavy Industries and Hanwha Ocean. From December 2 to December 27, HD Hyundai’s stock surged by 31.6%, climbing from 220,000 won to 289,500 won. Hanwha Ocean also saw a modest increase of 5.4%, moving from 35,000 won to 36,900 won. This upward trend comes despite a tumultuous domestic stock market, indicating strong investor confidence in these companies.
The optimism surrounding these shipbuilders is largely linked to the anticipated policies of the incoming Trump administration. Analysts believe that Trump’s re-election will stimulate energy development in the U.S. and lead to an expansion of liquefied natural gas (LNG) export facilities. This, in turn, is expected to generate increased orders for shipbuilders. Additionally, a recent proposal from the U.S. Congress aims to bolster the domestic shipbuilding industry through collaborations with allies, further enhancing the outlook for companies like HD Hyundai and Hanwha Ocean.
Despite the overall positive sentiment, the stock market’s fluctuations, particularly following political events such as the impeachment motion against acting President Han Duck-soo, have caused some instability. However, the stock prices of HD Hyundai and Hanwha Ocean remain significantly higher than at the beginning of the month, showcasing resilience amid uncertainty.
Samsung Heavy Industries: A Struggling Contender
In stark contrast to its competitors, Samsung Heavy Industries has faced a decline in stock performance. During the same period, its stock price fell by 2.7%, from 11,620 won to 11,310 won. Analysts point to several reasons for this underperformance. One major factor is Samsung’s conservative approach to foreign exchange risk management. The company employs a 100% foreign exchange hedging strategy, which limits its ability to benefit from favorable currency fluctuations. As most shipbuilding contracts are denominated in U.S. dollars, this strategy has left Samsung at a disadvantage compared to its peers, who hedge at lower levels and can capitalize on rising exchange rates.
Furthermore, Samsung Heavy Industries lacks a defense business, which has become increasingly relevant in the context of U.S. military collaborations. President-elect Trump has expressed interest in enhancing cooperation with South Korea in defense sectors, particularly in maintenance, repair, and overhaul (MRO) projects for U.S. Navy vessels. This has generated excitement around companies like HD Hyundai and Hanwha Ocean, both of which are actively involved in maritime defense. Analysts predict that Hanwha Ocean may even secure a contract for the U.S. Navy’s MRO business this year, further widening the gap between it and Samsung Heavy Industries.
The earnings outlook for Samsung Heavy Industries also appears less promising. While analysts project a 103.47% increase in operating profit for the year, this figure pales in comparison to the anticipated growth for HD Hyundai and Hanwha Ocean. The latter two are expected to report operating profit increases of 274.24% and a turnaround from losses, respectively. This disparity in growth expectations has led to a lack of foreign investment in Samsung Heavy, with foreign investors net selling 18.1 billion won in the company this month.
In summary, while HD Hyundai Heavy Industries and Hanwha Ocean are riding a wave of optimism, Samsung Heavy Industries is grappling with challenges that hinder its growth. The contrasting fortunes of these shipbuilders illustrate the complexities of the market and the impact of strategic decisions on stock performance.
