As the won-dollar exchange rate (won-dollar exchange rate) plummeted, evaluations emerged that Samsung Heavy Industries, which maintained a 100% hedge against exchange rate risks among the 'Big Three' shipbuilders, would benefit relatively.
Shipbuilders that build and sell vessels priced in the billions of won receive payments in dollars, making the impact of the exchange rate on performance significant. However, domestic shipbuilders' responses to the exchange rate vary somewhat. While Samsung Heavy Industries employs a 100% exchange rate hedge strategy, Hanwha Ocean and HD Hyundai Heavy Industries reportedly have hedge ratios around 70%.
This year, as the stock prices of shipbuilders soared, it seems that the different exchange rate hedging strategies of shipbuilders also affected stock prices. With the won-dollar exchange rate maintaining a high level in the 1400 won range, the profits of Hanwha Ocean and HD Hyundai Heavy Industries were expected to rise relatively. However, as the exchange rate plunged this month, the situation has become favorable for Samsung Heavy Industries.
According to the Korea Exchange on the 7th, Samsung Heavy Industries' stock price has risen by 27.04% this year (based on the closing price on the 2nd). This is higher than the KOSPI index's rise of 6.71%. However, considering that during the same period, Hanwha Ocean and HD Hyundai Heavy Industries had stock price rises of 108.73% and 41.35% respectively, the increase was relatively small.
The primary reason is that Samsung Heavy Industries does not engage in the special vessel business, such as constructing surface ships or submarines. Consequently, Samsung Heavy Industries was relatively weak in terms of expectations for cooperation in the shipbuilding sector between South Korea and the United States.
Differences in exchange rate hedging strategies have also been pointed out as factors suppressing stock prices. An exchange rate hedge refers to fixing the price of assets as per the exchange rate at the time of the hedging contract to counter fluctuations in asset prices due to changes in the exchange rate. Samsung Heavy Industries maintains a hedge ratio of around 100%, while Hanwha Ocean and HD Hyundai Heavy Industries are known to adjust around 70%.
Due to the nature of shipbuilders, exchange rate hedge contracts are essential for risk management. Most customers, foreign shipowners, contract in dollars, and they receive payments from the deposit to the interim payments and final payments over a period that can extend from 3 to 4 years.
Instead, Hanwha Ocean and HD Hyundai Heavy Industries enjoyed an increase in sales and operating profit by adjusting their hedge ratios during periods of rising won-dollar exchange rates. The average won-dollar exchange rate was 1453 won in the first quarter of this year (January to March), about 4% higher than the fourth quarter of last year (October to December).
Differences in exchange rate hedging strategies led to a gap in operating profit margins (operating profit ÷ revenue). In the first quarter of this year, Samsung Heavy Industries' operating profit margin was recorded at 4.9%. Even taking into account a one-time expense of 29 billion won for special incentive payments, it stands at around 6.1%. Hanwha Ocean and HD Hyundai Heavy Industries reported operating profit margins of 8.4% and 12.4%, respectively, excluding the special vessel sector and engine business. Hanwha Ocean also revealed that it recorded an exchange profit of about 30 billion won in the merchant ship sector in the first quarter of this year.
As the won-dollar exchange rate plummeted, the possibility emerged for Samsung Heavy Industries' 100% exchange rate hedge to shine. The won-dollar exchange rate recorded 1380 won shortly after the opening of the Seoul foreign exchange market that day, marking the lowest level in six months. If the downward trend continues, the higher hedge ratio of Samsung Heavy Industries will enhance its relative profit defense.
However, the impact of the exchange rate on shipbuilders' stock prices is clearly limited. Right after the won-dollar exchange rate plunged on the 7th, the stock price rises of Hanwha Ocean and HD Hyundai Heavy Industries outpaced that of Samsung Heavy Industries. The news that HD Hyundai Heavy Industries and Hanwha Ocean formed a 'one team' to jointly submit a bidding proposal for the Canadian submarine replacement project has been interpreted as stimulating investor sentiment and pushing the stock price up.
Samsung Heavy Industries also faces the challenge of narrowing the differences in construction capabilities in terms of corporate competitiveness. For example, Samsung Heavy Industries delayed the delivery of five container ships from April to August this year, while HD Hyundai Heavy Industries expedited the delivery of two very large liquefied gas carriers from November 2027 to August of the same year.
Securities firms see the contracts for liquefied natural gas (LNG) carriers and floating LNG production, storage, and unloading facilities (FLNG) that will begin in the second half of this year as a key factor to move Samsung Heavy Industries' stock price. In particular, Samsung Heavy Industries holds the highest market share in the FLNG market, referred to as 'an LNG factory on the sea.' Lee Jae-hyuk, a researcher at LS Securities, noted, "The dramatic trend of profit improvement for shipbuilders is increasing," adding, "Samsung Heavy Industries will have growth expectations, although there will be a time lag compared to competitors."