HD Hyundai chief doubles down on high-margin quality orders

HD Hyundai Co.’s Chief Executive Officer Chung Ki-sun [Photo provided by HD Hyundai]

HD Hyundai Co., the holding company of HD Hyundai Group, is set to prioritize profitability in future ship orders, bidding farewell to low-margin orders that have plagued South Korea’s shipbuilding industry.

“We will focus on winning orders in the environment-friendly ship segment, where vessel unit costs are high and consolidate our position in this segment,” said HD Hyundai’s Chief Executive Officer Chung Ki-sun. His remarks were made during a recent meeting with Knut Ørbeck-Nilssen, head of Maritime at Det Norske Veritas (DNV), a Norwegian classification society, in Seongnam, according to sources on Thursday.

“We have secured orders for the next three years and we are now able to be selective about future orders in terms of profitability,” Chung said.

At the end of March, HD Korea Shipbuilding & Offshore Engineering Co., the intermediate holding company for HD Hyundai’s shipbuilding operations, has an order backlog for 427 vessels worth $58.25 billion. Ships that are contracted this year will be delivered in 2027.

Chung has emphasized a selective approach to fresh shipbuilding orders based on profitability in recent internal meetings.

Korea Shipbuilding turned profitable in the third quarter of last year, spurred by orders for high-value vessels such as liquefied natural gas carriers, which have seen a surge in global orders since 2020.

However, the shipbuilder’s profitability remains low, with operating profit margins of 4.4 percent in the third quarter and 2.4 percent in the fourth quarter of last year. During the shipbuilding industry boom in the mid-2000s, margins hovered around 15 percent.

In this context, Chung’s emphasis on quality over quantity has led to changes in HD’s contracting practice.

“Recently, we have been focusing on contracts that meet our standard work requirements. This way we can reduce the cost and time from design changes and increase productivity,” said a company official.

The company is also prioritizing orders from shipowners who offer higher advanced payment.

Reflecting these changes is the shipbuilder’s new order target of $15.74 billion for this year, lower than last year’s order intake, which is unusual for the shipbuilding industry when the business is booming.

In the past, during the peak of the war for offshore plant orders around 2010, HD Korea Shipbuilding set its order target 20 to 30 percent higher each year to aggressively pursue new orders, which led to a deterioration in profitability. The focus on high-margin quality orders means the group will not repeat its past mistakes.