Hanwha Ocean says high-priced backlog to sustain profitability next year

Q3 2026 earnings conference call

Merchant vessel operating profit of 471.8 billion won accounts for bulk of total

Merchant backlog covers about 3 years; company vows not to cut prices for orders

Currency hedging expanded amid exchange rate volatility

Special vessels operating loss widens to 70.6 billion won; EPU posts 91.4 billion won profit

Thailand frigate contract targeted for completion this year; OPV push in Greece and others

Philly Shipyard eyed as production base for US market entry

An aerial view of Hanwha Ocean's Geoje facility. [Hanwha Ocean]

Hanwha Ocean plans to maintain stable profitability next year on the strength of its high-priced merchant vessel order backlog. The company is also expanding its currency hedging strategy in response to recent exchange rate volatility. Its special vessels division, which continues to post operating losses, is pushing into overseas markets for a turnaround, while the company explores new business opportunities in the United States.

Hanwha Ocean said Tuesday its consolidated sales for the third quarter reached 3.41 trillion won ($2.58 billion), with operating profit of 485.7 billion won — up 12.9 percent and 67.6 percent, respectively, from the same period last year. By division, the merchant vessel segment — with sales of 2.71 trillion won and operating profit of 471.8 billion won — accounted for the bulk of total operating profit. Sales and operating profit nonetheless fell from the previous quarter due to fewer working days and exchange rate effects.

The special vessels division posted sales of 363 billion won and an operating loss of 70.6 billion won, widening from an operating loss of 2.9 billion won in the previous quarter. The energy plant unit (EPU) recorded sales of 527.5 billion won and operating profit of 91.4 billion won.

Hanwha Ocean expects its high-priced merchant vessel backlog to continue supporting profitability into next year.

A company official said at Tuesday's third-quarter earnings conference call that the current merchant vessel order backlog covers about three years. "This year's merchant vessel orders stand at roughly 80 percent of our annual merchant vessel sales target of $8 billion," the official said. "We have enough projects under negotiation through year-end, so we will not cut vessel prices to aggressively fill the backlog."

The official added that, based on current projections, the level of profitability seen in the fourth quarter is expected to carry into next year, with orders placed in 2024 and 2025 set to be the primary driver of next year's earnings.

A Hanwha Ocean LNG carrier. [Hanwha Ocean]

LNG carrier demand positive long-term; hedging shields against currency risk

The company offered a mixed outlook for the LNG carrier market, projecting a divergence between long-term demand and near-term ordering conditions. A series of final investment decisions on LNG projects in the United States is expected to drive demand for LNG carriers to be delivered after 2030. Near-term demand for vessels to be delivered by 2029 remains relatively weak, the company said.

Production facility damage in Qatar has reduced exports, pushing some vessels originally earmarked to carry that cargo onto the spot market — a factor the company flagged as an additional headwind. "The increase in vessel supply in the short-term market has pushed spot freight rates lower and dampened sentiment for new vessel orders," a company official said. Long-term freight contract rates, however, have not fallen as sharply as spot rates, the official added.

Hanwha Ocean is also expanding its currency hedging to reduce earnings sensitivity to exchange rate swings. "We began hedging in the second half of last year and have since been systematically applying hedging to new orders," a company official said. "We expect the impact of exchange rate movements on earnings to diminish gradually."

According to the company's internal analysis, a 10 percent change in the current exchange rate would affect operating profit by slightly less than 10 percent. As it draws up its business plan for next year, the company will determine the appropriate hedging ratio by factoring in the exchange rate outlook along with its order and sales structure.

An aerial view of Hanwha's Philly Shipyard. [Hanwha]

Special vessel orders, US expansion both picking up pace

In the special vessels division, where restoring profitability remains a key challenge, Hanwha Ocean is pursuing order growth at home and abroad. The company aims to finalize a contract with the Royal Thai Navy for a frigate project before the end of this year. Next year, it plans to target the offshore patrol vessel market in Estonia and Greece. On the domestic front, it will continue pursuing support vessel and warship projects next year.

The company is also working to build a stronger foothold for entry into the US shipbuilding market. Nine vessels are currently under construction at Philly Shipyard in the United States. "It is difficult to say that the investment in Philly Shipyard is generating direct operating profit benefits at this stage," a Hanwha Ocean official said. "What we expect from the investment is that we have secured a production base that allows us to enter the US shipbuilding market directly."

The official added that the company can expand beyond US commercial vessels into the ship repair and naval vessel markets, and extend the production capabilities built up in Geoje to US operations. "We are closely watching how quickly the US market opens up," the official said.

keg@heraldcorp.com