Are Korea's shipbuilders nearing peak-out?

HD Hyundai Heavy Industries' shipyard in Ulsan / Courtesy of HD Hyundai Heavy Industries

Korea's shipbuilding industry, which has enjoyed a strong stock market rally amid a rare supercycle, now faces growing concerns among investors about an imminent peak-out — a slowdown after reaching its peak value, according to securities analysts, Thursday.

However, despite falling global ship orders and U.S. President Donald Trump's aggressive tariff policies, the industry's upward momentum is expected to continue for the time being, they said, citing solid fundamentals and resilient market indicators.

Samsung Securities analyst Han Young-soo said that, while concerns persist over valuation pressures and a possible peak-out, the shipbuilding industry remains in a robust growth phase.

"With the overall machinery sector on the rise this year, there is no reason for shipbuilding stocks to be undervalued compared to their peers," Han said.

Han pointed out that HD Hyundai Heavy Industries warrants a valuation premium, especially given the upward momentum in machinery sector valuations.

He also highlighted the shipbuilder's potential benefits from expanding into the overseas maritime defense market as well as rising demand for their engines due to tightening environmental regulations.

He said the firm's diversified business model covers both opportunities, giving it a strong competitive edge.

Concerns about a peak-out in the shipbuilding industry have arisen as the global shipbuilding market shows signs of a renewed downturn.

According to Clarkson Research, a U.K.-based maritime and shipping analysis firm, worldwide ship orders this May totaled 1.66 million compensated gross tonnage (CGT), equivalent to 71 vessels, a 55 percent drop from a year earlier.

Cumulative orders from January to May also fell to 15.92 million CGT (515 vessels), roughly half of 29.18 million CGT during the same period last year.

The Clarkson Newbuilding Price Index, an indicator of the shipbuilding market, has also declined, standing at 186.69 at the end of May compared to 189.38 at the end of January.

The decrease in global orders is attributed to factors such as the ongoing economic slowdown, the impact of the Trump administration's trade war and delays in ship orders due to the International Maritime Organization's regulations on eco-friendly vessels.

Nevertheless, analysts and industry officials here widely believe that favorable conditions surpassing the past 10-year average (2015-24) will continue until 2030.

U.S. Secretary of the Navy John Phelan, second from right, listens to an explanation from Hanwha Group Vice Chairman Kim Dong-kwan, right, during his visit to Hanwha Ocean's shipyard in Geoje, South Gyeongsang Province, April 30. Courtesy of Hanwha Ocean

Lee Ji-ni, an analyst at Daishin Securities, expected that the U.S. Navy's strategic expansion amid China's rapid naval growth and rising tensions in East Asia will support a prolonged boom for Korea's shipbuilding industry.

"The U.S. is shifting from a traditional aircraft carrier–centered long-range projection strategy to a mixed system of manned and unmanned vessels. In the era of littoral warfare, which emphasizes high-speed maneuvers and multidimensional reconnaissance, mass production of mixed manned-unmanned systems and various ship platforms is required," Lee said.

"While U.S. warships must be built domestically, support ships and some block assembly can be outsourced. The U.S. will need reliable and technologically capable partners like Korea."

In particular, the analyst highlighted that Hanwha Ocean, which is actively establishing a foothold in the U.S., has increased its chances of securing contracts from the U.S. Navy.