But when building a ship, materials need to be included. In Korea, we are gradually building more ships, and China is also gradually increasing its shipbuilding. So these days, if you look at the shipbuilding industry, there are also orders coming in from China. You should write about using three things, and you should also fix it. The market is changing to this market. In my opinion, shipbuilding companies, especially in terms of options and HD, are changing. Before you came today, I roughly calculated that the total market value of HD companies is nearly 40 trillion won. Yes, the size has grown so much that it's incomparable to the past, and they have achieved value enhancement alone. It's perfect, so suddenly the appeal disappears. Well, Hyundai Mipo has been a company like this since ancient times, so I don't really know. Other companies, like Hyundai Heavy Industries, were the only ones in Korea.

Hyundai Heavy Industries and other similar companies are being split up too much. Can we consider this as an attractive price? I have a lot of thoughts like this. We need to think that the restructuring of the industry has reached a scary completion stage. It seems necessary to consider that Hyundai Group is splitting up, and these days, there are many talks about tight supply in the shipbuilding industry. Also, Hyundai Group is involved in another business in the power equipment sector, which seems to be doing very well. Perhaps because of that, the value has increased significantly. So, it's noticeable that the number of digits in the stock price has changed. In this situation, analyzing the current situation and considering the future prospects, the stock price will definitely not be cheap. Currently, based on the performance, it seems that we need to look forward until next year.

I don't think it will be cheap if we delay until the second half of next year. Based on the current order backlog, we can confidently say to our investors that our performance may improve until the end of 2026. It could even improve until the end of 2027 after we achieve this year's sales target. So, now we are discussing the valuation burden. In the past, shipbuilding companies eventually reached a PBR of 1. However, at that time, shipbuilding companies, despite the speed difference, all reached a PBR of 1. But at that time, shipbuilding companies were accumulating orders for five years and working, although there were cancellations and events later.

Currently, Korean shipbuilding companies are collectively accumulating their volume for about three and a half years without compromising on prices. From our perspective, if performance is properly achieved in this cycle, it will be widely accepted in the market. If an agreement is reached to increase the value a bit more, there may be a point where the burden of tripling is not felt. Among the completed shipbuilding companies locally, one example is Hyundai Heavy Industries, where the stock price has been rising by more than double quite frequently. We used to have a hurdle of doubling continuously in the shipbuilding sector, but we have started to surpass that. Now, as earnings start to show for about a year or two, pulling in about three times the performance, I think the market will somewhat accept it.

Hannah Goshiwon is starting her activities very aggressively right now. Now, it seems like originally Chairman Kim's area was to become the leading defense company representing Korea and possibly becoming a global defense company. From the side, it seems credible that she has made up her mind to even enter the U.S. military market. How do you see the fit? In reality, since around 2012, China has been saying they will become a maritime power, which seems very similar. When we look at it now, you might think they focused on general commercial ships, but actually, they are planning to expand the area related to defense shipbuilding, which has already had a significant impact. Therefore, the influence of being able to produce large warships rapidly is already apparent.

It seems that China has started to surpass the United States, and the United States is now trying to respond to that. Over the past few decades, the U.S. has been trapped by laws such as the Coastal Law and the Jones Act. In fact, internally, the U.S. is now facing the retirement of large warships, and there is a growing judgment internally that there is not enough influence to raise them up as much as or more than China. Therefore, in response to China worldwide, we are looking for where we can create that, and now the situation is that there are only Japan and South Korea left. So, in order to overcome the limits that cannot be avoided, we think that we will have to reach out to South Korea, and from there, we are doing defense-related businesses such as Hyundai Heavy Industries and Hanwha Systems in the country.

Perhaps it is almost inevitable that we will be involved in something related to that in the future. So, in the end, we should consider things like acquiring a U.S. shipyard currently operating in the ocean, right? If we want to deal with those large-scale matters in the U.S., it might be challenging for us to handle them locally in the U.S. right away. Therefore, in reality, we are considering proceeding with negotiations in Japan. In order to do that, we had a chance to go through the process in the U.S. once. We are thinking that maybe we should go through that process again in Japan. Ultimately, if we want to expand to developing core components or even weapon systems in the future, we believe that we need to start small first. Also, when it comes to increasing the scale, we believe that within the next two trillion, when we conduct a capital increase, it will be in the maritime sector in our future roadmap.

Revenue growth is almost nonexistent, but it was mentioned that the defense industry will grow significantly, with about 9 trillion won of the total investment being overseas, mostly related to defense industries, either through equity investments or establishing overseas branches. Therefore, it seems appropriate to consider that progress is being made in that area. If, for example, instead of building ships or gas carriers like traditional shipbuilders, you are producing military shoes, wouldn't the valuation multiple change when valuing the company? In the past, when valuing shipbuilders domestically, we never gave higher valuations just because they were defense companies. This is because the Ministry of Defense determines how much each company should produce annually to generate a certain amount of revenue and profit, and based on that, orders are placed.

We don't connect the dots. Because there is a budget in the country, and it is always maintained in a situation where it is not always in full operation according to the defense budget, and the cost of continuing to do R&D to localize is included in the cost. So, even if the margin is high, it was at the level of just tens of percent, and the sales are about 10 to 15% of the total sales of the company annually, so there was always a limit. However, once it starts to be exported, that's when we start doing business. Because we have already invested all the costs in developing it for localization, when we sell it to foreign countries, it is sold at a much higher price. Therefore, it needs to be exported for actual defense exports to increase the profit margin to double digits. As such, the sales are now being estimated to a certain extent, and we are maintaining stable orders in the current general market, continuing stable orders.

Once the partial reflects, from then on, some valuation should be given, right? You are planning to bring some of the valuations of U.S. defense companies. Where and what valuation are you planning to bring? Right now, I am just giving a uniform quantitative amount to those two companies, adding about 2 trillion won. So, in reality, the valuation is only floating around those two companies. Now, we need to watch for the cold weather of receiving orders. Oh, the fundamental multiple will change, right? The multiple, no. Why am I asking you a question that was not discussed with Director Eom Kyung-hwa beforehand? Because if Director Eom Kyung-hwa writes it down, it could become a reality. Please listen carefully to this. Because depending on what multiple you give, it affects the thoughts of all investors.

Because it can be regulated like this, I think it is personally important, so I asked a little about the general production period. In the case of defense, it seems a bit difficult for us to bring in multiples at a similar level to twin lines. So, looking at the balance sheet, applying the multiples of companies that just make complete products abroad seems to be a bit more challenging than this. For a general production period, it should be about one to two times more than this. It must be very difficult, but it completely depends on how much operating rate you maintain. Oh, but that dock is a separate tool, yes, it's separate. It's separate, and the people involved in it are also separate. Those who do business related to defense cannot protest. They cannot protest; they have to keep making. But since it's not operating at 100% right now, it's not 100%.

If it operates, his multiple upward or not, the valuation upward factor becomes, oh, this has limitations, but if we increase the dock, it will be a completely different issue. If we increase the dock for defense purposes, it will be another problem. Suddenly, now we have to give more to become a top-line airplane company. But if we have the technology, I don't think we have been in a situation where we couldn't expand. So far, there seems to be a level of unnecessary expansion in our domestic defense market. However, if we start exporting, we may need to consider it. Maybe they won't have the shell without us. Initially, the Americans might think so, but then gradually, as they move towards core components, the focus may shift a bit.

I am thinking that it might not increase. It is true that this part will be a factor to raise the multiple in the future, but there are still many factors that need to be checked periodically. How much Django will find, whether the company plans to increase the Kepa, whether there are parts that can stably bring in employees to ensure that it can run smoothly, and whether it will eventually go into core component development or just stay on the surface. Now, we need to keep an eye on that. After going through that, we need to look at the quarterly performance. But it's a long story. In fact, the defense industry involves winning contracts, and it takes a long time for that to translate into revenue. Yes, and they don't even disclose it. They won the contract, they won't even disclose that.

In the case of imports and orders, until now, if we had placed orders, it would have been disclosed, but if we just received it and the delivery is like 15 years later, it's kind of like that, so it's a bit difficult for us to know when it will start. When it's like this, other defense companies, even general land defense companies, sometimes do not disclose. It's a secret situation, saying it's confidential due to contracts with the other party. There are many cases like this, so it's natural for ships to be like that. Of course, it's obvious where we will place orders, but still, many people are watching, so I feel like we can't be careless. There might be a lot of that kind of feeling. So, if I look at it, one interesting thing this time is that in the past, when shipbuilders went up, the equipment would...

Even though it's going up, except for the recent tank-making companies, it doesn't go up. Journalist suppliers actually pop a little earlier in '22, so when we look at it now, there are companies with very good profit margins. Even if a two-digit operating profit margin comes out, it's not that surprising, so if we cut off the good period and look back later, the swing rate itself may end up being better for the journalist companies later. So, we pulled ahead once, and now it's a resting period, and some stocks are just hitting new highs now. So, how do you see it? Are these shipbuilding companies attractive? If you look carefully among the journalist supplies, there must be attractive ones, right? We express that journalist suppliers are open, and that's it.

Anyway, I told the North Korean companies that I won't issue a certificate, so both sides are a bit stuck. That's why the lid is open on that side. North Korean companies have undergone a lot of restructuring, but equipment companies have also been greatly affected. However, when building a ship, equipment needs to be installed. In Korea, we are gradually building more ships, but China is also gradually building more. So these days, when you look at the shipbuilding industry, there are orders coming in from China, and now we need to use new and repaired ships. The market is changing right now, and even in the repaired ships, equipment is installed. So we supply to Xinjiang as well, not only for new ships but also for repair and modification. In fact, our sales may not end with just making ten ships like we did in the past. Just like reporters, I work with equipment companies and engineering.

Journalists who have some influence are expecting that shipbuilding companies will end up with much better profits. So overall, the shipbuilding valuation has been pulled in about a year now, and if the latter half of 2025 and 2026 improve, there is a aftershock that can reflect that. And if it improves until 2027, that should be reflected again. However, if the balances of shipbuilding companies stagnate in the meantime, it seems like the psychology will be shaken from then. When we look at it, in the past, when we looked at shipbuilding companies before investing, we saw the shipbuilding cycle. When the shipbuilding cycle peaks, the stock price peaks, and then when the shipbuilding cycle falls, that happens. But this time, after the shipbuilding cycle is filled, it continues like this for a while. That's why shipbuilding stocks are rising like this, maintaining this situation for a long time.

This, well, this one, back in the old days, we could just look at the corn and do it, but it's not like corn prices go up after corn prices go up. It's not decreasing or increasing, it's kind of ambiguous. However, in the past, in terms of the trend of that week, there was a peak in October 2007. At that time, what was at its peak? It was the amount of orders. After the peak in orders, it continued to rise. It rose for about a year, and during that year of increase, eventually the Lehman Brothers crisis broke out, and it came down very sharply. But there was a point where it revisited the previous high point. In 2010, what was good at that time? Our performance was good. Shipbuilding companies really had good performances using what they had received in the old days, and not just ordinary ships, but because oil prices were so good, we received a lot of orders for marine plants, so it was a time when orders were good and performance was good. So, now, what we are looking at.

We experienced good orders in 2021, more than in 2022 and 2023. Therefore, the first half of 2021 was good, and we started building what we ordered. It is now a complete performance cycle. If there is an unexpected expansion of orders or a more solid basis for orders than expected, it is expected to start to be reflected in the stock price. So now, the earnings season is crucial. Even if we maintain a stable balance sheet, it is expected to significantly contribute to raising the valuation. Last year and the year before, when there were no docks, we mainly received gas carrier orders, but this time we received orders for 20 large vessels in the HD sector.

The price is 200 million dollars, which is 100 million dollars, so wow, the price has really gone up a lot compared to the old days. This kind of feeling, right? Recently, gas has increased by more than 250 million won. The price, yes, it will be around 2.65 million. So, we need to receive gas lines. Why do we receive cargo ships? It makes us think a little. The capacity of gas lines from shipbuilding companies is somewhat separated from the capacity of other cargo ships. So, shipbuilding companies can each build about 230 ships per year. Shipbuilding 34, so we received a lot of LNG carriers, but the capacity to build per year has not increased, only the period of receiving has significantly increased. Cumulatively, in 2026, we received orders for 2028 and increased. So, Hyundai Heavy Industries, in one year, what about 23 years?

Build 20 LNG carriers, then another 30, make 20 more, and then 30 more. If we try making weapons as well, there will be separate empty spaces where we can make the rest. So, we need to accept this to make a lot of ranges and many other ships to return to full capacity. That's why it's crucial to fill these remaining spaces. Oh, and the dock sizes are different, so the types of ships that can be built on each ship are slightly different. There were some separations for special equipment that goes into them. Also, there is a severe shortage of manpower, so we brought thousands of people from Vietnam, but when we checked the site, oh, they couldn't communicate properly. They were like, Why aren't they raising our wages? What's going on? I heard these kinds of stories. How about that? Right now, there are many imbalances and something about a lot of people.

The biggest point of change was last year. For example, the number of employees is still before increasing, so you can consider it as 20 years. And shipbuilding companies are not increasing their workforce significantly. It seems like we will finish only until this year. Therefore, the time when shipbuilding companies had the most employees was around 2010. Back then, we had 200,000 workers, but as of the first half of 2021, the number of employees in domestic shipbuilding companies dropped to 100,000. Well, we don't need an additional 100,000 employees. I mentioned that our shipbuilding capacity has decreased significantly anyway. So, I thought we would need only about 20,000 more employees, but the government says we need around 14,000. Meanwhile, there have been some changes in the process, and many tasks are now done by machines. So, in reality, we may only need around 2,000 more employees.

Recently, when you visit a equipment company, straight welding and such things are really done by machines, where one person holds both sides like this, only specifies the path, welds straight, and so on. Therefore, the personnel needed to build more ships will be hired by the end of this year, and there are no plans to increase them further. However, if you talk to shipbuilding companies, last year, for example, Samsung Heavy Industries planned to hire 1200 people at the beginning of last year but ended up hiring 1800 people by the end of the year. When asked about this year's plan, they said they already hired 200 people in the first quarter out of the 4,500 people planned. So, once they hire all of them, they won't need to increase further, so there seems to be a gap in communication. I think the noise about that might decrease from last year's peak.

Today, I really have a very good overall understanding of the shipbuilding industry. Is there anything you would like to know if you wish you knew more about it? Since we are the ones investing, the most curious thing for us is whether we should just hold onto it. These days, many people are asking in a hurry and being impatient. When it comes to investing in the shipbuilding industry, you should first keep an eye on the overall contract projects. If someone mentions that the shipbuilding market seems a bit empty, then it's time to stop without any regrets. If there are signs that the number of contracts is not increasing and the dock is idle, then there might be a need to stop. So, even if the profits are still high, saying that the market is still good is just an excuse. When that time comes, that's when such aspects.

If you see it, we will always say that we are starting to see this part now in the market, so please continue to check carefully. However, since now is the starting point of a good cycle, I recommend not taking it lightly and investing. Those who are doing macros now see the shipbuilding industry very positively. Those who do macros see, on the contrary, what is now, what is the best in shipbuilding, small industries like cosmetics, food, and groceries, but on a larger scale, automobiles, shipbuilding, and semiconductors are seen as the top picks. So, since the time series of investment experts is here, today, we have invited Eom Gyeong-hwa and Yeongwon very carefully. So, you must have been very helpful to you and it would be good to refer to it for your investment.

I am so thankful for sharing such valuable wisdom and knowledge like this, and I kindly ask you to continue writing such great articles in the future. We would like to emphasize once again that you need to be supported by everyone. You need support, praise, and encouragement to be able to walk this path. It's not easy to face everything alone. That's why I believe that when there are always good people around, we should always applaud. I think it makes society better. Thank you for your precious words today, and I would like to express my gratitude to our panelist, Yeonggyeong, and also to the viewers who have been with us. Thank you.

조선주의 슈퍼 사이클! 하지만 조선주보다 '이쪽'에 주목해라 | 엄경아 연구위원 #2 [투자Insight]

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