Q3 operating profit misses expectations as brokerages slash target prices
Ship maintenance growth remains intact despite forex losses and acquisition costs
Brokerage firms have successively lowered their target prices for HD Hyundai Marine Solutions (443060) despite the company posting record-breaking third-quarter revenue. The cuts followed an operating profit that fell short of market expectations and a 59% plunge in net income, prompting a wave of downward revisions to earnings forecasts.
Hana Securities on the 27th lowered its target price for HD Hyundai Marine Solutions by 12.1% from 330,000 won to 290,000 won. NH Investment & Securities also reduced its target from 310,000 won to 280,000 won, a 9.7% cut. A day prior, KB Securities slashed its target price by 27.4%, from 310,000 won to 225,000 won. All three brokerages maintained their 'Buy' ratings.
According to consolidated financial statements released by HD Hyundai Marine Solutions on the 26th, third-quarter revenue rose 26.7% year-on-year to 650.1 billion won. Operating profit increased 2.2% to 95.7 billion won, while net income tumbled 59.1% to 32.6 billion won.
While revenue beat the market consensus by 8.7%, operating profit missed estimates by 9.6%. The operating margin also declined by 3.5 percentage points, dropping from 18.2% in the third quarter of last year to 14.7% this year.
Profitability was weighed down by a stronger Korean won and approximately 9 billion won in one-off expenses related to the acquisition of Goltens, a global marine and power plant engine maintenance provider. In particular, the drop in the exchange rate triggered valuation losses on foreign currency-denominated assets held to fund the Goltens acquisition, substantially widening the decline in net income.
Profitability slows on FX rates and acquisition costs, yet ship maintenance growth stays resilient
KB Securities attributed the contraction in the operating margin to the appreciation of the won, one-off costs from the Goltens acquisition, and an increased revenue share from the bunkering business, which carries relatively lower profit margins.
NH Investment & Securities adjusted its earnings estimates for 2027 and 2028 downward by 4% and 7%, respectively, reflecting currency fluctuations. Valuations adjusted for rising market interest rates also influenced the target price cuts. Excluding the roughly 9 billion won in Goltens acquisition expenses, the firm noted that third-quarter operating profit was largely in line with market expectations.
Despite the margin slowdown, the core business maintained its growth trajectory. Revenue from the aftermarket (AM) division, responsible for marine parts supply and maintenance, climbed 15.7% year-on-year to 282.7 billion won, marking a record performance for the seventh consecutive quarter. Increased sales of ship parts and a power plant maintenance contract in Ecuador contributed to the top-line growth.
Bunkering revenue advanced 38.5% to 293.6 billion won, while revenue from eco-friendly and digital solutions grew 17.3% and 48.1%, respectively. Combined revenue from core businesses—AM alongside eco-friendly and digital solutions—expanded 18.4% to 356.5 billion won, posting an operating margin of 26.7%.
Long-term maintenance contracts are also expanding. New long-term service agreements (LTSA) for marine engines increased by 80 vessels in the third quarter, bringing related order backlogs to $586 million, up approximately 21% from the beginning of the year.
On the 8th of this month, HD Hyundai Marine Solutions signed an agreement to acquire Goltens for approximately 331.5 billion won. Leveraging Goltens' global service network, the company is expected to expand its business beyond group-affiliated vessels to non-affiliated ships and enter the maintenance market for data center power generation engines.
Yoo Jae-sun, an analyst at Hana Securities, said in a report on the 27th, "Given the steady increase in LTSA vessels, the rising proportion of dual-fuel engines, the expansion of the group's engine production capacity, and forays into the data center segment, AM service revenue is projected to see continued growth going forward."
