On 10th September, HD Hyundai Heavy Industries disclosed a capital investment plan worth a total of 1.0722 trillion won (approximately $800m) to expand production capacity for medium-speed engines and small modular reactors (SMRs). The following day, iM Securities published a flash note maintaining its "Buy" recommendation and target price of 860,000 won per share.
The investment breaks down into 833.6bn won for medium-speed engines and 238.6bn won for a dedicated SMR manufacturing facility, equivalent in aggregate to 11.5% of the company's equity capital. Engine-related construction begins immediately and is scheduled for completion by 31st May 2028, while the SMR facility will break ground on 1st October and be finished by 30th April 2029.
Once the expansion is complete, the company's annual medium-speed engine production capacity will more than double, rising from the current 3 gigawatts (GW) to 7.2GW. The plan calls for a new 3GW plant in Ulsan dedicated exclusively to land-based power generation, while the existing Ulsan facility (3.2GW) will focus on marine engines and the HD Hyundai Engine plant in Yeongam, South Jeolla Province (1GW), will serve both markets. First deliveries from the new plant are expected in the second half of 2028, with utilisation rates projected to climb from 30% in 2028 to full capacity by 2030.
iM Securities estimates that each gigawatt of engine capacity can generate roughly 1 trillion won in annual revenue at operating margins exceeding 20%. Should the expanded capacity run at full utilisation, the additional revenue contribution could exceed 4 trillion won per year. The SMR facility is sized to manufacture two units annually of TeraPower's Natrium reactor (345 megawatts each), with first revenues expected in 2028.
Notably, management was at pains to stress that the expansion is not driven solely by data-centre demand. HD Hyundai Heavy Industries said the investment is a response to broad-based growth in demand for land-based power-generation engines, spanning national electricity grids and emergency back-up generators for nuclear power plants. The company has already disclosed two major orders this year: a 627.1bn-won contract (684MW) with US firm Aperion Energy Group and a 956bn-won contract (1,000MW) with Corban Energy Group, also of the United States — a combined contract value of 1.5831 trillion won.
Despite the announcement, the company's shares fell on 10th September. As of 11th September, the stock closed at 453,500 won, implying upside of 89.6% to iM Securities' target price. The weakness reflects a broader malaise across South Korean shipbuilding stocks: HD Hyundai Heavy Industries has returned -10.0% year-to-date, compared with -11.6% for Samsung Heavy Industries and -25.5% for Hanwha Ocean.
Several factors explain the sector's poor showing. The most significant is the fading of optimism over potential US naval shipbuilding contracts, which had driven much of last year's rally. The legislative momentum in the 119th US Congress (sitting until 3rd January 2027) for bills permitting foreign construction of American naval vessels has weakened, and analysts see little prospect of passage before the November mid-term elections. A broader market sell-off triggered by semiconductor-related volatility in July and August also weighed on the sector.
Third-quarter earnings are also expected to disappoint. A strengthening won, fewer working days owing to summer holidays and an industrial accident, and higher steel-plate prices are all compressing margins, making it likely that profits will fall short of second-quarter levels.
The underlying shipbuilding business, however, remains robust. Global newbuild orders reached 59.72m compensated gross tonnes (CGT) by the end of August, up 60.6% year-on-year — the strongest ordering pace since 2021. South Korean yards' core vessel types — LNG carriers, tankers and container ships — accounted for 67% of total orders by value. HD Hyundai Heavy Industries has already surpassed its full-year commercial vessel order target of $11.47bn, securing $13.06bn to date.
For investors, the expansion announcement affirms the company's medium-to-long-term growth trajectory, but the earnings contribution will not materialise until 2028 at the earliest, limiting its appeal as a near-term share-price catalyst. A capital expenditure programme of over 1 trillion won also introduces financial risk, and if global electricity demand growth disappoints, securing adequate utilisation for the new capacity could prove challenging. iM Securities retained its overweight stance on the shipbuilding sector and kept HD Hyundai Heavy Industries as its top pick.