HD Hyundai Heavy Industries: Q2 in line; No engine capacity adds as yet

Research evidence excerpt

HD Hyundai Heavy Industries: Q2 in line; No engine capacity adds as yet

HD Hyundai Heavy Industries UBS Research

UBS Research THESIS MAP Thesisa guideMapto our thinking and what´s where in this report

Pivotal Questions Q: Can naval demand offset cyclicality of the commercial shipbuilding sector?

No but we expect it to provide a buffer. We expect orders to remain elevated at +96%/-3%% YoY in

2026–27E driven by LNGC, naval and power engine demand. We forecast orders to soften in 2028-

29E as commercial ship orders slow.

Q: Will AI/DC power engine help offset the cyclicality of the shipbuilding sector?

Similar to naval orders, we expect it to provide a buffer in the mid-term (2027-2030E) assuming HHI

adds new power engine capacity. We assume HHI to add 1.5GW of 4 stroke engine capacity by end

2027E.

Q: Can peak margins exceed the last peak in 2010?

Yes given better mix and cost deflation. We estimate OPM to rise due to higher contribution from

power engine. However, key risk is higher labor cost given demand by the union to share profits.

UBS VIEW We affirm HHI as our top pick in the shipbuilding sector supported by AI/DC power engine demand in

the near term, improving commercial shipbuilding market from H226 and US naval opportunities in

the long term. Moreover, we view much of the defense premium has been unwound after the recent

correction. We see power engine capacity adds/orders as well as LNGC pricing, US regulatory

milestones and improved earnings visibility as the key catalysts for rerating from here.

EVIDENCE We forecast naval orders to grow at a +20% CAGR to US$2.8bn by 2030E, driven by both domestic

and export orders. HHI won US$14.8bn (+85% YoY) orders in H126, achieving 72% of its target.