Hyundai Heavy's engine unit emerges as golden goose

Hyundai Heavy Industries Co., a South Korean shipbuilding giant, is seeing its marine engine business unit emerge as the company’s cash cow.

The Engine & Machinery Business Division, which makes marine engines and machinery, is estimated to value at 2 trillion won ($1.6 billion) and is expected to post a record-high annual operating profit of 164 billion won this year. Market watchers say the engine unit, alongside the shipbuilding unit, will enhance the profitability of the company at risk of not being paid for ships ordered by Russian buyers due to the ongoing war in Ukraine.

The engine division’s operating profit in the first quarter hit a record 33.7 billion won, up 109.1% from the same quarter of 2021. It was the company’s only division that posted operating gain last quarter -- from its whole business, the shipbuilder saw an operating loss of 217 billion won, including 115.5 billion won loss from the shipbuilding part and 44.2 billion won loss from the industrial plant part.   

The engine division’s annual sales and operating profits in 2022 will be the highest ever, respectively hitting 1.5 trillion won and 164 billion won, according to analysts’ consensus estimates. The division’s sales rose from 1 trillion won in 2018 to 1.05 trillion won in 2021, and operating profit soared from 15 billion won to 133 billion won during the same period. Its operating profit to sales ratio surged from 1.5% to 8.9% during that time.  

The engine division is leading the global marine engine market with its flagship product Hi-touch Marine & Stationary Engine, or HiMSEN Engine, for ship propulsion and power generation for onshore power plants. Last year, the division topped the global market share in marine and stationary diesel engines, scoring 35%.

The division is seeing a surge in engine orders as the growing demand for eco-friendly ships, such as liquefied natural gas (LNG)-powered or methanol-powered ships, need more dual-fuel engines for propulsion. Hyundai Heavy Industries is renowned for its two-stroke and four-stroke dual-fuel engines in the HiMSEN lineups.   

The engine division’s earnings before interest, taxes, depreciation and amortization (EBITDA) are estimated at 200 billion won. The average market capitalization of machinery companies listed on the Korean stock market is around 10 times EBITDA. Given this, Hyundai Heavy Industries’ engine division is valued at approximately 2 trillion won.

The division’s annual sales and operating profit will respectively reach 1.8 trillion won and 488 billion won by 2025, thanks to surging demand for eco-friendly marine engines, according to an analysis by Daol Investment & Securities Co.

Write to Ik-Hwan Kim at lovepen@hankyung.com
Jihyun Kim edited this article.