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Attractive valuation

4Q24 preview: OP likely to beat the consensus by 15%

For 4Q24, we expect HD Korea Shipbuilding & Offshore Engineering (HD KSOE) to report revenue of W7.47tr (+25% YoY; 9.1% above consensus), operating profit of W516.4bn (+220.5% YoY; 15% above consensus), and OP margin of 6.9% (+0.5%p QoQ, +4.5%p YoY). We attribute the likely consensus beat to: 1) a QoQ increase in the number of working days (from 53 to 62 days); 2) a sharply higher USD/KRW rate (+12.6% QoQ); and 3) enhanced production efficiency and cost savings.

Solid 2025 guidance; positive expectations for LNG carriers

For subsidiary HD Hyundai Samho, HD KSOE guided 2025 revenue at W7.43tr (14% above the 2024 guidance) and new order intake at US$4.57bn (43% above the 2024 guidance). While the order guidance is 37% lower than the actual orders won by HD Hyundai Samho in 2024 (US$7.2bn), we do not believe this is a major concern, considering that the company overachieved its guidance by 126% last year. Notably, Clarksons forecasts a total of 85 LNG carriers to be ordered in 2025. For containerships, any sharp slowdown in orders seems unlikely given the strong financial resources of shipping companies and the accelerating push to replace fleets with eco-friendly ships.

We forecast 2025 consolidated revenue at W29.6tr (+14% YoY) and operating profit at W2.5tr (+72% YoY; OP margin of 8.4%). This year, the average newbuilding price of LNG vessels (from steel cutting to keel laying) is likely to rise 13% YoY to US$260mn (from US$230mn in 2024). Of note, HD Hyundai Samho is set to increase its LNG carrier construction capacity to 14 vessels (from 10) by expanding its berthing facilities. With both prices and volume likely to rise, margins should continue improving; we forecast HD Hyundai Samho’s OP margin to widen 1.6%p YoY to 12.2% in 2025.

Maintain Buy and raise TP by 14% to W329,000

We maintain our Buy rating on HD KSOE and raise our target price by 14% to W329,000 (from W288,000), implying 35% upside potential. We derived our target price by applying a target P/B of 1.4x (based on 2026-27F sustainable ROE of 13.6%, COE of 8.3%, and a terminal growth rate of 2.6%; 25% discount) to our 2026-27F average BPS of W230,235 (vs. W235,378 previously). Based on our 2027F EPS of W48,292, our target price implies a P/E of 6.8x.