---
endpoint: analytics
pattern: Capital Goods
status: done
latency_ms: 209788
conversation_id: f6eced23-8dff-4480-9a3a-2a3c12f9c88f
citations: 16
created: 2026-05-31 21:17:16Z
---

# What’s the bull case bear case for HD Hyundai Heavy?

# HD Hyundai Heavy Industries (329180 KS) — Bull Case / Bear Case

**Stock**: HD Hyundai Heavy Industries Co., Ltd. (329180 KS) — flagship listed shipbuilder of HD Hyundai Group, ~75% owned by HD KSOE.

**Sell-side anchor (CLSA, May 2025 initiation)**: High-Conviction Outperform, target price **₩613,000** (vs share price ₩421,500 at initiation → ~45% upside), valued at **0.7x 2026CL EV/backlog**, a 30% discount to the 1.0x peak the legacy Hyundai Heavy Industries achieved in the 2005–10 cycle, reflecting the HD Samho carve-out [1][3][9]. HD HHI is CLSA's sector top pick across all four Korean yards [11].

---

## BULL CASE

### 1. Structural shipbuilding "supercycle," not just a cyclical upturn
- Korean shipbuilder market cap has already +177% since 2024 / +50% YTD, but CLSA argues there is still room to rerate because the industry is mid-cycle, driven by LNG carrier demand, the global decarbonisation push and a step-change in US naval orders [2][11].
- Management at the Q1 2026 call argues the demand is **structural, not cyclical** — citing "tightening environmental regulations, accelerating energy transition, and replacement demand for aging fleets" as drivers that "remain firmly in place" [14].
- Clarksons raised its 2026 global newbuild forecast to **115.7m GT** (vs an earlier 90m GT), implying the third consecutive year above 100m GT — Q1 2026 orders were already up **+67% YoY** to 36.9m GT [16].

### 2. Best-in-class LNG carrier franchise
- HD HHI is the world's largest shipbuilder and the leading producer of LNG carriers, very large ammonia carriers (VLACs), and dual-fuel engines [1].
- CLSA estimates the US LNG export buildout alone will require **≥480 additional LNGCs over 2027–36**, on top of 510 already in delivery for 2021–29; LNGC orderbook share at HD Hyundai Group is the largest in the world [2].
- Long-haul route shifts (US → Asia / Europe) extend ton-miles, supporting LNGC tightness even if LNG volumes plateau.

### 3. US naval rearmament — HD HHI is one of the few eligible foreign yards
- HD HHI holds an MSRA (Master Ship Repair Agreement) with the US Navy and is targeting 2–3 USNS MRO contracts in 2025; it has stated it will double drydock capacity for Naval & Special Ships [1].
- CLSA's US naval opportunity sizing through 2030: **bull US$74bn / base US$43bn / bear US$24bn** in addressable orders for Korean yards [8].
- Capacity ramp is real: HD HHI can re-open idle docks #4 and #5, taking surface-vessel capacity well above today's 3 ships/yr (and 1 sub every 2 yrs) [5].
- HD HHI **has not yet received the naval premium** that Hanwha Ocean has enjoyed — yet it carries the same exposure to the US Navy story; CLSA argues a rerating is coming as orders materialize [4].

### 4. Q1 2026 results validate the operating leverage
- Q1 2026: Sales **₩5,916.3bn (+54.8% YoY, +13.9% QoQ)**, OP **₩905.4bn (+108.8% YoY, +57.5% QoQ)**, OPM **15.3%** (+4.0ppt YoY); Net Income **₩773.8bn (+172.3% YoY)** [12].
- Q1 order intake: **US$6.39bn = 37.5% of full-year target** (HHI $4.9bn / Samho $1.0bn / KSOE $0.45bn) — and crucially these are selectively chosen high-value vessels (LNGCs, VLGCs, container) rather than chasing China on tankers/bulkers [13].
- Engine business — a hidden gem: **Marine Engine OPM ~25%**, with dual-fuel engine mix rising to 73% (2-stroke) / 79% (4-stroke). Capacity is increasingly being directed at high-margin data-center generation engines, with revenue from that vertical starting **2028** [15].

### 5. Widest portfolio = most narratives to ride
- Unlike Samsung Heavy (LNG pure-play) or Hanwha Ocean (LNGC + submarine focus), HD HHI spans LNGC, LPGC, tankers, naval surface vessels, offshore, and engines — giving it leverage to every leg of the supercycle simultaneously [11].
- This is precisely why CLSA assigns it a higher target multiple (0.7x EV/backlog) than peers (Samsung Heavy 0.4x, Hanwha Ocean 0.45x) [11].

### 6. Earnings trajectory and key metrics (CLSA estimates)

| Metric (CLSA) | 25CL | 26CL | 27CL |
|---|---|---|---|
| EPS growth | +129.9% | +39.2% | +19.7% |
| PB (x) | 5.4 | 4.4 | 3.6 |
| ROE | 22.7% | 25.9% | 25.4% |
| **TSR to TP** | | | **+45%** |

[9]

---

## BEAR CASE

### 1. Naval narrative is still pre-orders, with binary US-legislation risk
- The single biggest downside risk is that **US naval orders arrive later than expected, or only as small/low-value ships** — the bull case priced in by parts of the market hinges on the US bill allowing allies to build US Navy vessels actually passing. If it stalls or fails, the naval re-rating thesis evaporates [6][7].
- CLSA itself flags this: "the US naval vessel narrative is still in early stages, with room to disappoint if actual orders are lower than expected or if the bill to allow US naval vessels to be built overseas does not materialise" [7].
- Even if the legislation passes, there is concern that **Korean yards get capped after the first few years** as the US revitalizes domestic shipyards — limiting upside to a 3–5 year window rather than a multi-cycle franchise [10].

### 2. LNG / LNGC oversupply risk
- The same US LNG export terminal buildout that drives the bull case carries a tail risk: **once those terminals come online they could oversupply the LNG market**, triggering a sharp downturn in LNGC orders and pricing [6][7].
- LNGC spot rates have already collapsed — 160K CBM 1-yr timecharter was ~US$15,000/day in Jan 2025 vs a 10-yr average of ~US$70,000/day — illustrating how violently the LNGC market can move against shipowners.
- CLSA observed a **declining Clarksons Newbuild Price Index** as a question investors are raising on the entire group [10].

### 3. Valuation already discounts a lot
- At ₩421,500 entry price, HD HHI was trading at ~**5.4x 25CL PB** and ~0.5x EV/backlog vs the 1.0x cycle peak. Bears argue much of the supercycle is in the price already — a single quarter of weaker orders, FX headwind, or naval disappointment could compress the multiple sharply.
- Investors in CLSA's roadshow flagged concerns over **revenue/backlog upside running out**, with Q1 order intake at only 37.5% of guidance year-to-date — backlog growth could decelerate if Korean yards stick to selective ordering [13].
- Management itself warned that if naval and offshore orders fail to materialize this year, **revenue could start declining from 2026 onward** as the current backlog burns off.

### 4. Spin-off / structural overhang
- Today's HD HHI is structurally smaller and less diversified than the legacy pre-2022 Hyundai Heavy Industries because **HD Hyundai Samho was carved out**. CLSA explicitly applies a **30% discount** to the prior peak multiple for this reason — meaning HD HHI cannot mathematically reach old HHI's premium even in the best case [1][3].
- Parent HD KSOE owns 75%, and remaining exchangeable bonds (EBs) held by HD KSOE create a recurring share-overhang concern — the May 2025 share-price weakness was tied partly to the KRX "investment caution stock" designation and EB-conversion fears.

### 5. Competition — China remains the elephant
- Chinese yards (Hudong, Dalian) have aggressively expanded LNGC capacity and held **64% of total LNGC orderbook share** at peak, vs HD Hyundai Group's 20%. While Korea dominates the high-end (LNGC, VLAC, dual-fuel engines), Chinese yards continue to take share in tankers and bulkers, forcing Koreans into ever-narrower (and ultimately capacity-constrained) niches [13].
- HD HHI's high engine OPMs and dual-fuel premium can compress if Chinese engine licensees (WinGD, MAN-B&W license partners in China) scale up.

### 6. FX / cost / geopolitics
- Q1 2026 KRW/USD averaged ₩1,513 — a tailwind. But shipbuilding is multi-year, USD-denominated, and KRW-cost — **a meaningful KRW strengthening reverses the margin tailwind**.
- Geopolitical events (Middle East conflict, US-Iran tensions) can delay offshore tenders in the UAE / Saudi / Kuwait pipeline that HD HHI has submitted bids for — management acknowledged a 3–6 month tender cycle with potential slippage [14].
- Tariff risk on the broader Kospi continues to drag sentiment even if shipbuilding is relatively insulated [2].

---

## NET SETUP

**Bull view (CLSA / TP ₩613,000, HC O-PF [1])**: The widest portfolio in Korean shipbuilding gives HD HHI maximum exposure to four simultaneous secular tailwinds — LNG, naval, container/decarbonisation, and dual-fuel engines — while the naval rerating priced into Hanwha Ocean has not yet been awarded to HD HHI [4][11]. Q1 2026 confirms operating leverage is real (OP +108.8% YoY [12]) and management's own commentary frames demand as structural [14].

**Bear view**: Most of the cyclical re-rating may already be in the stock, the naval thesis depends on Washington (legislation + actual orders [7]), LNG oversupply is a credible tail risk [6], and the Samho spin-off permanently caps the multiple vs the old HHI [1]. If orders flatten and the naval bill stalls, the stock has a long way to mean-revert.

---

**Sources**
[1] Korea shipbuilding (Anchors aweigh: Answering the call for US LNG and naval ship demand) — CLSA, 11-May-2025 — 607949990LinqAlpha.PDF
[2] Same (Anchors aweigh) — supercycle / market-cap rally / LNGC TAM
[3] Same — Upside for select shipbuilders / 30% discount logic / TP rationale
[4] Same — Naval premium gap to Hanwha Ocean
[5] Korea shipbuilding (Addressing recent concerns) — CLSA, 18-May-2025 — 607959768LinqAlpha.PDF
[6] Anchors aweigh — Risks to our view (naval delay / LNG slowdown / US legislation)
[7] Addressing recent concerns — Investment risks for HD HHI
[8] Anchors aweigh — Bull/Base/Bear US naval TAM table
[9] Anchors aweigh — Coverage / TSR / EPS / PB / ROE table
[10] Addressing recent concerns — Reasons to remain bullish (LNG oversupply / naval cap)
[11] Anchors aweigh — Order of preference / portfolio differentiation
[12] HD Hyundai Heavy Industries — 1Q 2026 Earnings Presentation (slides)
[13] HD Hyundai Heavy Industries — Q1 2026 Earnings Call — order intake & strategy
[14] HD Hyundai Heavy Industries — Q1 2026 Earnings Call — structural demand drivers & risks
[15] HD Hyundai Heavy Industries — Q1 2026 Earnings Call — engine business / data center
[16] HD Hyundai Heavy Industries — Q1 2026 Earnings Call — global newbuild market outlook

## Citations

- [1] **607949990LinqAlpha.PDF** · clsa — <s3://ext-linq-rms-clsa/2025/05/607949990LinqAlpha.PDF>
- [2] **607949990LinqAlpha.PDF** · clsa — <s3://ext-linq-rms-clsa/2025/05/607949990LinqAlpha.PDF>
- [3] **607949990LinqAlpha.PDF** · clsa — <s3://ext-linq-rms-clsa/2025/05/607949990LinqAlpha.PDF>
- [4] **607949990LinqAlpha.PDF** · clsa — <s3://ext-linq-rms-clsa/2025/05/607949990LinqAlpha.PDF>
- [5] **607959768LinqAlpha.PDF** · clsa — <s3://ext-linq-rms-clsa/2025/05/607959768LinqAlpha.PDF>
- [6] **607949990LinqAlpha.PDF** · clsa — <s3://ext-linq-rms-clsa/2025/05/607949990LinqAlpha.PDF>
- [7] **607959768LinqAlpha.PDF** · clsa — <s3://ext-linq-rms-clsa/2025/05/607959768LinqAlpha.PDF>
- [8] **607949990LinqAlpha.PDF** · clsa — <s3://ext-linq-rms-clsa/2025/05/607949990LinqAlpha.PDF>
- [9] **607949990LinqAlpha.PDF** · clsa — <s3://ext-linq-rms-clsa/2025/05/607949990LinqAlpha.PDF>
- [10] **607959768LinqAlpha.PDF** · clsa — <s3://ext-linq-rms-clsa/2025/05/607959768LinqAlpha.PDF>
- [11] **607949990LinqAlpha.PDF** · clsa — <s3://ext-linq-rms-clsa/2025/05/607949990LinqAlpha.PDF>
- [12] **HD Hyundai Heavy Industries Co., Ltd., Q1 2026** · external
- [13] **HD Hyundai Heavy Industries Co., Ltd., Q1 2026** · external
- [14] **HD Hyundai Heavy Industries Co., Ltd., Q1 2026** · external
- [15] **HD Hyundai Heavy Industries Co., Ltd., Q1 2026** · external
- [16] **HD Hyundai Heavy Industries Co., Ltd., Q1 2026** · external

