Hanwha Group officially enters the "ship's heart" business by acquiring the second-largest marine engine manufacturer!

After acquiring Hanwha Ocean (formerly Daewoo Shipbuilding & Marine Engineering) last May, South Korean defense giant Hanwha Group further expanded its presence in the shipbuilding sector by successfully completing the acquisition of HSD Engine Co., the world's second-largest marine low-speed engine company, officially entering the marine engine business, known as the "heart of ships."

"Hanwha Engine" is here! Hanwha Group completes acquisition after a year

On February 27, HSD Engine Co. held an extraordinary general meeting of shareholders, where resolutions including the amendment of its articles of association to change the company name to "Hanwha Engine Co." and the appointment of new directors were approved by vote.

Liu Mun-gi, former Head of Investment Strategy at Hanwha Impact, a petrochemical subsidiary of Hanwha Group, has been appointed as the first CEO of Hanwha Engine Co. Liu Mun-gi previously served as Head of Advanced Materials Business Development and Head of New Business Division at Hanwha Group, before being transferred to Head of Investment Strategy at Hanwha Impact.

Previously, Hanwha Group announced on February 12 that Hanwha Impact's application for corporate merger review for the acquisition of HSD Engine Co. had received final approval from the Korea Fair Trade Commission (KFTC). A Hanwha Impact official stated: "Following the corporate merger reviews in major exporting countries, the Korea Fair Trade Commission has also approved this acquisition, and the acquisition process is now complete. HSD Engine Co. will officially be renamed Hanwha Engine Co."

In his inaugural speech, Liu Mun-gi stated: "This new name, Hanwha Engine Co., signifies that the company has become a member of the Hanwha family, and also means it possesses strong growth momentum to challenge new possibilities. To enable every employee to provide customers with value that competitors cannot imitate, and to meet future challenges, the company will undergo self-innovation."

Hanwha Group's acquisition of HSD Engine Co. took a full year. On February 16 last year, Hanwha Impact signed a Memorandum of Understanding (MOU) to acquire a 32.8% stake in HSD Engine Co. for 226.9 billion Korean Won (approximately 177 million US dollars), of which 19% was for acquiring existing shares and 14% for new shares through paid-in capital increase.

According to International Ship Network, HSD Engine Co. is South Korea's second-largest marine engine manufacturer, second only to Hyundai Heavy Industries Engine & Machinery (HHI-EMD). For many years, it primarily supplied marine engines to companies like the former Daewoo Shipbuilding & Marine Engineering and Samsung Heavy Industries. Its predecessor was Hanjin Heavy Industries Engine Co., established in 1983. In 2000, Hanjung, Daewoo Heavy Industries (DHI), and Samsung Heavy Industries (SHI) collaborated to jointly establish HSD Engine Co. In 2005, HSD Engine Co. was renamed Doosan Engine. From 2015 to 2016, to cover their own losses, Samsung Heavy Industries and Daewoo Shipbuilding & Marine Engineering divested their shares in Doosan Engine. In March 2018, with Doosan Heavy Industries selling its Doosan Engine shares to two South Korean private equity funds, Doosan Engine's controlling shareholder changed, and it was again renamed HSD Engine Co.

In 2013, HSD Engine Co. successfully achieved the world's first commercialization of marine dual-fuel low-speed engines. Simultaneously, it also led the world in developing marine environmentally friendly low-temperature Selective Catalytic Reduction (LPSCR) equipment, successfully commercializing it in 2014. LPSCR equipment is an environmentally friendly device that can remove over 90% of nitrogen oxides from exhaust gases.

Shipbuilding + Engine Manufacturing! Hanwha Group's integration of the shipbuilding industrial chain shows initial results.

South Korean shipbuilding industry insiders state that through this acquisition, Hanwha Group's competitiveness in the shipbuilding market is expected to further improve. Particularly, HSD Engine Co. has already made a name for itself in the field of eco-friendly engines, thus it is expected to provide new momentum for Hanwha Ocean to seize dominance in the future vessel market.

Hanwha Impact plans to produce dual-fuel engines by combining its own eco-friendly power generation technologies, such as hydrogen-blended gas turbines, with HSD Engine Co.'s manufacturing capabilities, to preemptively respond to international decarbonization regulations.

Following the acquisition of Daewoo Shipbuilding & Marine Engineering, Hanwha Group's completion of the HSD Engine Co. acquisition this time will provide a "comprehensive shipbuilding solution" from ship manufacturing to engine manufacturing, utilizing its own production and technical capabilities. This means enhancing market competitiveness in terms of delivery time and price, strengthening ship maintenance capabilities, and laying the foundation for stably responding to the fluctuating risks of the global shipbuilding market.

Hanwha Group emphasizes that as the decarbonization process in the marine sector accelerates, it will strengthen the development capabilities for marine eco-friendly engines. After acquiring HSD Engine Co., synergy will also be created through cooperation with Hanwha Power Systems, a Hanwha energy equipment subsidiary. In July 2022, Hanwha Group announced that Hanwha Impact would acquire Hanwha Power System, an energy equipment subsidiary of Hanwha Aerospace. Hanwha Impact plans to leverage this acquisition to strengthen its technological capabilities in the power generation equipment sector.

Vertical integration will provide a special advantage in producing engines that can use alternative fuels. Hanwha Group stated that it plans to combine Hanwha Power System's technology with HSD Engine Co.'s engine manufacturing capabilities to produce eco-friendly fuel engines such as ammonia and hydrogen. Furthermore, by combining Hanwha Power Systems' industrial air and gas compression technologies with HSD Engine Co.'s generator production capabilities, it aims to enhance competitiveness in the power generation equipment sector.

According to International Ship Network, HSD Engine Co. has extensive experience in developing methanol-fueled engines. In September 2022, the company signed a joint development project with WinGD, planning to deliver a methanol-fueled engine by 2024.

Returning to profitability after three years, HSD Engine starts anew with a new owner.

While joining its new "owner," HSD Engine Co. successfully returned to profitability last year after three years, achieving an operating profit of 8.7 billion Korean Won (approximately 7 million US dollars) for the full year, an increase of approximately 38 billion Korean Won (approximately 29 million US dollars) compared to the operating loss of 29.5 billion Korean Won (approximately 22 million US dollars) in 2022.

In 2023, HSD Engine Co. achieved operating revenue of 854.4 billion Korean Won (approximately 644 million US dollars), an 11.8% year-on-year increase; its net loss for the period was 400 million Korean Won (approximately 301,300 US dollars), significantly reducing the loss compared to the net loss of 40.3 billion Korean Won (approximately 30.3532 million US dollars) in 2022.

Additionally, HSD Engine Co.'s new orders in 2023 totaled 1.2441 trillion Korean Won (approximately 937 million US dollars), a 29.7% decrease compared to 1.7694 trillion Korean Won (approximately 1.333 billion US dollars) in 2022. Despite the decline in order volume, the proportion of dual-fuel (DF) engine orders continues to expand. In 2020, dual-fuel engines accounted for only 19% of the company's new orders, increasing to 55%, 83%, and 95% in 2021, 2022, and 2023, respectively. Notably, last year, the proportion of dual-fuel engines for merchant vessels surged to 90%, a 27 percentage point increase year-on-year.

As of the end of last year, HSD Engine Company held orders totaling 2.5473 trillion Korean won (approximately US\$1.919 billion), of which 2.4252 trillion Korean won (approximately US\$1.827 billion), or 95%, were for marine engines. Among these marine engines, dual-fuel engines accounted for 91%.

South Korean shipbuilding industry insiders say that while HSD Engine Company's new order volume decreased last year, the increased proportion of high-profit dual-fuel engine orders is noteworthy. Dual-fuel engines, which can use both marine fuel oil and natural gas, are more than 20% more expensive than traditional diesel engines, resulting in a 3-5% higher profit margin. Therefore, the high proportion of dual-fuel engine orders is directly related to the company's increased revenue.

It is worth mentioning that in the fourth quarter of last year, HSD Engine Company achieved operating revenue of 278.4 billion Korean won (approximately US\$210 million) and operating profit of 1 billion Korean won (approximately US\$75,300). While operating revenue increased by 24.2% year-on-year, operating profit decreased by 97.0%. This is also a significant difference compared to the previous quarter's performance, with operating revenue increasing by 48.3% quarter-on-quarter, but operating profit plummeting by 91.1%.

An analyst from a South Korean securities firm stated, “The decrease in profits in the fourth quarter of last year was due to factors such as the decline in exchange rates and the setting of reserves for the planned supply volume this year. Although operating revenue increased, profits were limited, similar to the performance of shipbuilding companies.”

This person predicted, “Although Hanwha Engine Company currently has over 90% dual-fuel engines in its backlog, there is a certain time lag before this is reflected in operating revenue. As low-profit orders decrease this year, the company's performance improvement efforts will become more active. Hanwha Engine Company's operating revenue is expected to increase by 10.1% year-on-year this year, and its operating profit margin will rise to 4.1%.”