HD Hyundai Heavy Industries bets big on power engines, targeting a 2.4-fold capacity increase by 2030

HD Hyundai Heavy Industries has announced a new capital investment programme worth a total of 1.0722 trillion won (approximately $780m), prompting SK Securities to assess, in a research report published on September 13th, that the expansion represents a meaningful new growth engine entirely uncoupled from the conventional merchant-shipping cycle.

Two flagship projects

The investment breaks down into two components. Some 833.6 billion won will fund a new factory for four-stroke medium-speed power generation engines in Onsan-eup, Ulju County, Ulsan. A further 238.6 billion won will go towards a dedicated manufacturing facility for small modular reactor (SMR) primary components. Construction on the engine plant is scheduled to begin in September 2026 and conclude in May 2028; the SMR facility is to break ground in October 2026 and be completed by April 2029.

Capacity leap

Once the expansion is complete, HD Hyundai Heavy Industries' four-stroke medium-speed engine—branded "Himsen"—production capacity will rise from 3.0 gigawatts (GW) today to 7.2GW by 2030. Of that total, land-based power generation engines will account for 4.0GW (comprising 3GW from the new plant and 1GW from subsidiary HD Hyundai Engine in Yeongam, South Jeolla Province), while marine engine capacity will increase from 2.3GW to 3.2GW. Combined with the company's existing 9GW of two-stroke main propulsion engine capacity, total engine-division output will reach 16.2GW.

A strategic pivot, not merely a scale-up

The most striking aspect of the announcement is the near-vertical jump in land-based power engine capacity—from a modest 0.2GW of actual output to 4.0GW. This is less a conventional capacity expansion than a deliberate entry into a new market: supplying power to AI data centres. SK Securities notes that the company has disclosed its current inquiry pipeline is substantially larger than the 9GW it communicated when it secured a 1GW order (130 units of 9.6MW engines) from Corban Energy Group in August 2026, suggesting the expansion rests on firm, identifiable demand rather than speculative projections.

The new plant will be operationally ready in June 2028, following a post-completion inspection, with the first engine deliveries expected in the fourth quarter of that year. Utilisation is projected at roughly 30% in 2028, rising to full capacity from 2030. In the intervening 2027–28 period, HD Hyundai Engine's 1GW line will shoulder the bulk of supply.

Financial impact

The effect on earnings will become material from 2029. The Engine & Machinery division recorded revenues of 1.8753 trillion won in the first half of 2026; SK Securities projects annual revenues approaching 4 trillion won on a full-year basis. If the additional 4.2GW of four-stroke capacity operates at full utilisation from 2030, the division's revenues could more than double from current levels.

The gas-turbine bottleneck

The strategic logic behind the investment is rooted in a global supply crunch for gas turbines—the preferred power source for AI data centres, typically deployed in combined-cycle configurations. With every major gas-turbine manufacturer running at capacity, demand is spilling over into four-stroke engines. GE Vernova's gas-turbine order backlog stood at 116GW as of the second quarter of 2026, with current bookings not due for delivery until 2031. Although GE Vernova plans to raise annual output from 20GW to 30GW by 2030, analysts believe supply normalisation across the five global majors cannot realistically occur before 2031–32. HD Hyundai Heavy Industries itself, on a recent conference call, identified "the pace of gas-turbine capacity additions by 2032" as the key variable that could tip the four-stroke engine market into oversupply.

A new competitive hierarchy

The expansion also reshapes the competitive landscape. Wärtsilä of Finland currently holds roughly 60% of the market for four-stroke medium-speed power generation engines. But when announced capacity additions are tallied—Wärtsilä at 3.2GW, Everun (formerly ABC) at 1.5GW, and HD Hyundai Heavy Industries at 4.0GW—the Korean company's share of the three-player total of 8.7GW rises to 46%, placing it at the top of the industry. Future production capacity, not historical market share, will increasingly determine competitive standing.

Floating data centres: the next frontier

The addressable market is also broadening. Floating data centres (FDCs) and power ships are emerging as additional demand sources, as NIMBY (Not In My Back Yard) opposition and permitting delays increasingly obstruct land-based data-centre construction in the United States, pushing big-technology companies to explore maritime alternatives. Both power ships and FDCs use stationary power generation engines—9.6MW and 20MW units—rather than conventional marine propulsion engines. HD Hyundai Group is positioning itself to offer an integrated package spanning FDC design, power ship design, and key equipment. Competition is intensifying: on September 13th, Hanwha Ocean announced that its 60MW FDC model had received an Approval in Principle (AiP) from the American Bureau of Shipping (ABS).

Risks worth watching

Investors should nonetheless weigh several risks. First, the full earnings contribution from the new capacity will only materialise in 2029–30, limiting near-term upside. Second, industrial action poses a near-term threat: the HD Hyundai Heavy Industries union was conducting four-hour partial strikes as of September 11th, with plans to extend stoppages to seven hours between September 16th and 18th—a potential drag on third-quarter results. Third, should gas-turbine manufacturers accelerate their own expansion more rapidly than expected, demand for four-stroke engines could peak earlier than anticipated.

Verdict

SK Securities concludes that the investment provides a credible basis for a re-rating of the stock, given that it diversifies earnings away from the inherently cyclical merchant-shipping market. The brokerage maintains an Overweight recommendation on the Korean shipbuilding sector and names HD Hyundai Heavy Industries, HD Hyundai Marine Solution, and Hanwha Engine as its top picks.