Daewoo Shipbuilding & Marine Engineering Co Ltd

KRX:042660

Earnings Call Analysis

Hanwha Ocean shows recovery signs with increasing LNG carrier sales and positive profit outlook.

In Q3 2024, Hanwha Ocean achieved sales of KRW 2.703 trillion, up 6.6% from the previous quarter. Operating profit turned positive at KRW 25.6 billion, buoyed by a shift towards higher-priced LNG carriers. However, net income was still negative at KRW 72.9 billion due to one-off losses. The commercial vessel segment, accounting for 80.3% of total sales, grew by 2.8%, with expectations for LNG carrier revenue to rise to 70% next year. Total liabilities increased to KRW 12.186 trillion, but debt is projected to decline as major vessel deliveries ramp up in 2025.

Strong Sales Performance Driven by Strategic Acquisitions and LNG Growth

In the third quarter of 2024, Hanwha Ocean reported revenues of KRW 2.703 trillion, marking a 6.6% increase quarter-on-quarter. This growth is largely credited to the integration of a newly acquired business division from Hanwha Corporation and an increased share of high-priced LNG carriers in the market. Notably, the operating profit rebounded to KRW 25.6 billion, driven by a significant upturn in revenue from LNG carriers, signaling a shift from lower-priced containerships that have characterized previous quarters.

Profit Recovery and Strategic Focus on LNG Carriers

For the quarter, Hanwha Ocean's operational adjustments allowed it to improve profitability significantly, transitioning the revenue recognized from low-priced containerships to more profitable LNG vessels. Executives noted that the share of revenue from LNG carriers is projected to rise sharply to 70% in the upcoming period, which is expected to further stabilize and enhance operating margins as LNG prices continue to rise.

Financial Health and Debt Management Strategies

While total liabilities have risen to KRW 12.186 trillion and net debt increased to KRW 3.851 trillion, the company anticipates a gradual decline in total debt by 2025 due to improved cash flow from LNG carrier deliveries. The company maintains a healthy liabilities-to-equity ratio at 291.5%, consistent with industry standards. This financial posture supports Hanwha Ocean’s ongoing capability to undertake significant contracts and navigate through temporary cash mismatches associated with heavy-tail construction timelines.

Optimistic Outlook for Departmental Revenue Growth

The commercial vessel segment, which constitutes 80.3% of total sales, reported a 2.8% increase in Q3 revenues, driven by heightened construction volume specifically in LNG carriers. The naval ship business also maintained stability, posting revenues of KRW 196.1 billion, supported by consistent operational profits. The offshore business exhibited a robust rebound, with sales spiking 46.8% to KRW 292.2 billion, recovering from previous production adjustments.

Order Book Stability Amidst Market Fluctuations

Hanwha Ocean has secured a total of USD 7.36 billion in orders this year, indicative of a resilient order intake strategy amidst geopolitical uncertainties and market conditions that challenge new builds. The company adeptly utilizes its competitive edge by promising faster delivery times, securing contracts for 17 LNG carriers recently, including groundbreaking dual-fuel container ships for Merck, priced at USD 209.5 million each.

Navigating Global Geopolitical Risks and Defense Expansion

The backdrop of increasing military spending due to geopolitical tensions has driven demand for naval vessels. Hanwha has positioned itself strategically in this domain, having won its first U.S. Navy ship MRO project. This significant step illustrates the company’s commitment to growing its defense capabilities, alongside expanding into the U.S. shipbuilding market with ongoing acquisitions like the Philly shipyards, expected to solidify their foothold in a critical defense sector.

Future Earnings Projections and Market Adaptability

Looking forward, Hanwha Ocean forecasted revenues to remain strong in 2025, expecting figures in the high KRW 11 trillion range. The company acknowledges external factors, such as FX fluctuations, could impact these projections, yet remains confident in sustaining production volumes similar to the current year's output. Their adaptability in sales strategy concerning market dynamics positions them well to seize upcoming opportunities while balancing profitability with operational stability.

Earnings Call Transcript 2024-Q3

[Sang Yun Han, executive]

Good afternoon. I am Sang Yun Han, Head of IR at Hanwha Ocean. First of all, I'd like to thank everyone for joining the call on Hanwha Ocean's 2024 third quarter performance. Also joining the call, we have Yong-In Shin, Head of Finance; [ Tan Chang Min ], Head of Planning and Coordination; [ Key Beoho ], Head of Strategy and Planning; [ Kang San Dong ], Head of Commercial Vessels Sales, [ Woo Yeon Seok ], Head of Offshore Marketing; and [ King Ho Joon ], Head of Naval Ship Business Development.

During the call, the company will explain the business performance, market conditions and oral outlook followed by Q&A with participating analysts. Now the company will brief you on 2024 Q3 business performance and highlights.

[Yong-In Shin, executive]

Good afternoon. I'm Yong-In Shin, the CFO of Hanwha Ocean. I will present on the business performance and financials. First, let me brief you on the 2024 Q3 performance. Please turn to Pages 5 and 6 of the presentation. On a consolidated basis for 2024 Q3, the company has recorded KRW 2,703.1 trillion in sales, KRW 25.6 billion in operating profit and negative KRW 72.9 billion in net income.

Cumulatively, by Q3, the sales are KRW 7,522.8 trillion, operating profit of KRW 68.9 billion and net profit negative KRW 51.2 billion. The 2024 Q3 sales increased by 6.6% Q-on-Q from the Q2 sales of KRW 2,536.1 billion to KRW 2,731 billion. The higher sales are partially attributable to the incorporation of the planned business division acquired from Hanwha Corporation starting this quarter.

Excluding the impact of plant division, the third quarter sales was a slight increase despite a reduction in operational days as the share of the high-priced LNG vessels, which had been rising since the previous quarter continued to grow.

In Q3 2024, the proportion of revenue recognized from low-price containerships ordered in 2021 decreased while revenue from profitable LNG carriers increase leading to a significant recovery in profit. The operating profit turned positive, reaching KRW 25.6 billion. There were some one-off factors that affected the financial results, including a loss of KRW 41 billion due to currency appreciation, an increase in outsourcing cost of KRW 7 billion and our contract adjustment related to LD amounting to KRW 8 billion, totaling KRW 56 billion in impact. Thanks to the continuous efforts to stabilize production and ongoing discussions with the ship owners regarding LD, production stabilization cost decreased significantly Q-on-Q.

Please turn to Page 7 for financials. The total assets as of the end of Q3 '24 has increased by KRW 1,376 trillion Q-on-Q to KRW 16,366.9 trillion and cash equivalents declined by KRW 839 billion to KRW 1,037.3 trillion. Total liabilities have increased by KRW 295.5 billion Q-on-Q to KRW 12,186.2 trillion. And the total debt increased by KRW 619.1 billion to KRW 4,888.5 trillion. Net debt has increased by KRW 1,455 trillion Q-on-Q to KRW 3,851.2 trillion. This is due to increase in working capital with increased volume of heavy tail construction in 2024.

As it is the characteristic of a heavy-tail construction, there is a time lag between cost input and payment collection, leading to the temporary cash surplus or shortfall. The debt is expected to gradually decline from 2025 to with the improved funds balance due to more LNGC delivery. While the liabilities to equity ratio has slightly increased to 291.5% in Q3. It is in line with the shipbuilding industry average, and the company maintained solid financial structure.

Next, I will share with you 2024, Q3 business performance and the whole year outlook by segment. Please turn to Page 8. First, the commercial vessel business, which accounts for 80.3% of the total sales for Q3 '24. The sales from the commercial vessel business grew by 2.8% Q-on-Q, KRW 2,177 trillion due to continued increase in construction volume and higher portion of LNGC out of total sales. Despite one-off factors such as decline in the FX rate, contract adjustments, including LD and increased outsourcing costs Q3 profit turned positive with KRW 36.4 billion surplus. This was driven by a decrease in the revenue proportion from lower-priced container ships and an increase in revenue from profitable LGC. Next year, profitability is expected to further improve as the revenue share from LNGC is projected to rise to 70% with the LNGC prices continue to increase.

Next, Navel Ship business. While revenue decreased Q-on-Q due to the absence of a one-off reversal related to estimated contract price adjustment reflecting cost increases. The company achieved a planned revenue of KRW 196.1 billion. As revenue recognition for the second vessel of the [ Tango for Q3 batch 2 ] that true progresses, we expect to maintain stable revenue. With no significant one-off factors, the company recorded an operating profit of KRW 13.7 billion. Continuing the positive profit trend. Looking ahead, we anticipate sustainable profitability driven by increased sales from submarines and submarine MRO.

Lastly, offshore business. While the sales temporarily declined in Q2 due to process adjustment, the sales increased by 46.8% Q-on-Q to record KRW 292.2 billion. Thanks to full-fledged construction of [ John's ] IO FCS and WTIV #2. Due to the impact of currency depreciation, a loss of KRW 35.2 billion occurred in some offshore projects in the order backlog. While property recovery is lower compared to other divisions, we plan to improve profitability through strict project management and securing changing orders, change orders.

This concludes briefing on business performance by segment. We will share from each business unit on respective market conditions and order outlook.

[Unknown Executive]

Good afternoon. I am [ Kang Hang Dong ], Head of Sales at the Commercial Vessel business unit. I will brief you on the market condition and order outlook for the commercial ship business unit. Please turn to Page 12 of the presentation.

We are surrounded with various internal and external uncertainties such as the concerns over a global economic slowdown, prolonged war between Ukraine and Russia and other geopolitical risk in the Middle East. Despite challenging internal and external environment, the company successfully secured orders for 17 LNGCs, including 1 LNG FSRU, 3 BLAC, 7 VLCCs and 6 containerships. The commercial vessels BU alone achieved orders worth USD 6.74 billion out of the company's total order value of USD 7.36 billion maintaining a strong order intake trend.

Our selective order strategy, leveraging faster delivery times compared to the competitors has proven effective allowing us to secure contracts and higher price -- at prices higher than the market average, ensuring profitability.

Recently, we signed a contract with a Denmark-based Merck for 6 LNG dual-fuel container ships at a price of USD 209.5 [ million ]. Last year, we had placed container ships at a lower priority compared to other vessel types due to market prices not meeting our target profit margin. However, with the sharp rise in prices this year, profitability has been secured. This was made possible by our ability to adapt the sales strategy flexibly in response to rapid changing market conditions.

For the remainder of this year, we expect a favorable sellers market environment, driven by continued demand for new builds such as LNGC and VLGC, BLAC, spurred by stricter environment regulations. Additionally, although a large number of container ships have been already ordered this year. some shipping companies that have yet to participate are still exploring new orders. We are currently in discussions on multiple projects. The company continues to offer faster delivery times compared to competitors, and we anticipate securing additional orders based on this advantage.

As vessel prices, the qualitative indicator of new orders continue to increase across all vessel types and shipyards maintained a sufficient order backlog and any set adjustment in vessel prices is unlikely. Therefore, the company plans to continue a selective order-taking strategy, focusing on profitability through stable order backlog management. At the same time, the company plans to remain flexible, considering a valuable slot, profitability of different vessel types, market conditions, and future potential.

As the spares still are many projects under discussion regarding LNGC, containerships, BLAC and VLGC that the company focuses on. And when considering overall market condition and new vessel demand, we can maintain additional order volume to maintain the current level of order backlog of 3 years.

Next, market condition and order outlook per vessel types. First, LNGC, the new order is expected to slow down due to fear for oversupply from large orders placed in '22 and '23, and the number of new vessels ordered will be fewer than last year. As for mid- to long-term hook, however, the demand for new LNGC is expected to remain solid with more stringent environment regulations, growing LNG export to the U.S. and the demand to replace outdated steam turbine powered LNGC. The result of the U.S. presented election in November will have an important impact on the future LNGC order. And depending on the results, the approval on the LNG new pipeline could be accelerated to further drive LNGC orders.

In fact, in September, often forecasting sub raised its LNGC order forecast for next year to 85 vessels, an increase of 15% from its March projection indicating a strong market outlook. Regarding VLGC, the company has secured a fixed new orders based on faster delivery than competition and closed sales for delivery for 2026. Several other projects are under consultation, but many shipping companies are now in a wait and see mode due to the recent hike, investor costs and decline in freight charge.

Due to decline in new orders for the past 7 years, the order backlog to fleet ratio for VLGC is at a historical low of less than 8%. And while the ratio of old vessels is relatively high. Therefore, with the potential improvement in the freight charge, which is being adjusted right now, we can expect additional order.

As for BLAC and VLGC, more stringent environment regulations have increased the demand for clean energy significantly Therefore, ammonia, as fuel for vessels and transition into hydrogen economy have created a positive environment for new orders. Currently, all major companies such as Epson and Chevron have embarked upon blue ammonia development project and the demand for ammonia delivery is expected to rapidly grow from 2030. Despite spike in order from late last year, there still remains demand for new vessels. The company is in negotiation with various shipping companies on various projects with a valuable slots to further drive the vessel cost.

Lastly, container the free charge for container skyrocketed due to increase in [ 2 ] miles because of diversion of container ships due to the Red Sea shipping crisis. coupled with port congestion. Also large shipping companies move quickly and competitively for new vessels.

Changes in alliances from 2025 is expected to reconstruct the competition landscape, which may drive top ranking liners to place new orders to maintain and/or expect market share. As a valuable slot round out from shipyards with the capabilities to build large containers, including Chinese ship boards, the best price increases rapidly. Therefore, the company intends to focus on order taking on large-sized containerships with higher profitability. This has been a briefing on the market condition and order outlook for commercial vessels. Thank you.

[Sang Yun Han, executive]

Thank you. Let's now hear from the Navel Ship business unit.

[Unknown Executive]

Good afternoon. I am Kim Holding in charge of the Navel Ship business development. I will brief you on the defense market condition, and cover key issues that the investors might be interested in. Concrete intentions are intensifying across the globe with international disputes such as the Russia-Ukraine War and the Middle East complex expected to persist for a significant period. This instability is leading to increased military spending, resulting in growing demand for submarines and war ships in the naval defense sector.

Meanwhile, the U.S. and China are fiercely competing for dominance in the Pacific, both viewing the region as a strategically critical area for economic and military interest. The U.S. is facing limitations in its domestic naval procurement capabilities, making the support of allied nations with the strong shipbuilding technology crucial. Hanwha Ocean is quietly responding to this global geopolitical ships, while also seeding the business opportunities driven by the security landscape at a corporate level, fostering both national interest and company growth.

In August, the company became the first growing company to win a U.S. Navy ship MRO project, marking our initial transaction in the U.S. Navy ship market, and we are currently in discussions for additional MRO projects. Through thorough business evaluation, we will continue to actively pursue the U.S. Navy MRO contracts and improve profitability.

Let me briefly update you on the upcoming deal closure for the daily shipyards. In June, together with Hanwha Systems, we signed a contract to acquire 100% of the shares in [ Philly ] shipyards located in Philadelphia, U.S.A. The government approval process for the acquisition is proceeding smoothly. We received approval from the CFIUS committee on foreign investment in the U.S. in September and are now awaiting approval from the DDTC, Directorate of Defense Trade Controls. We expect the deal to close within Q4.

Philly shipyard will serve as a strategic foothold for our full-scale entry into the U.S. defense and commercial shipbuilding markets. With additional construction facility expansion and by utilizing the largest dock in the U.S., it will become an effective site for naval shipbuilding and MRO activities. Hanwha Ocean is actively expanding its defense businesses, starting with the U.S. Navy MRO project and the acquisition of the shipyard. We will also proactively address global defense demand, including submarine projects in Poland, the Middle East, Canada and the Philippines as well as the Combat projects in Thailand and Oceania, broadening our footprint in the global defense market.

The current status of a specific project will be discussed further during the Q&A session. We sincerely ask for your continued interest and support as Hanwha Ocean pursues growth and contributes to global security through continuous innovation and challenges. Thank you.

[Sang Yun Han, executive]

Lastly, let's hear from the offshore BU.

[Unknown Executive]

Good afternoon. I am [ Chu Yung Seok ], Head of Offshore Marketing. Please turn to Page 14 for the market condition of offshore plant. International oil prices slowed -- showed a downward trend from July to August due to the easing geopolitical tensions in the Middle East and concerns over economic slowdowns in the U.S. and China. However, since August, oil prices have risen again due to heightened geopolitical tensions in the Middle East and Europe as well as the economic stimulus measures like the interest rate cuts in the U.S. and China, leading to increased uncertainties around oil supply and demand. As a result, international oil prices are expected to remain high for the foreseeable future due to overall market certainty.

The FPSO market is expected to continue growing, driven by recent discoveries of large deepwater oil fields. In particular, for newbuild orders, there is a growing trend towards project utilizing standardized FPSO holes, which can reduce project time lines and costs. Additionally, there is an increasing number of projects that link FPSO newbuilds with O&M services. Looking at the trend of oil majors, the U.S. oil majors focus their investment into the U.S. shale oil and other key regions such as [ Ayana ], while securing quality assets through M&A they pursue exploration in South America and Africa.

European companies are also expanding their portfolios or increasing their focus on the oil and gas sector where demand is expected to grow. Total energies for instance, is actively investing in upstream operations, such as the development of new oil and gas field in Suriname and Namibia to contribute to the increased supply. For example, total energy has made the final investment decision for the development of the Grand [ Morgu ] deepwater oilfield located in Block 58 through the first-ever FPSO newbuild in the history of upstream on offshore oil development. This project is scheduled to begin production by 2028.

As for the drilling market, the ultra-deepwater oil exploration and development demand drives the charter rate high and long-term positive prospects. While the global wind power suffers from the serious negative news, including delay, suspension or cancellation of construction due to inflation, increase in capital cost supply chain limitations and determination of various governments and developers on wind power projects remain strong.

Demand for WTIV for fixed offshore wind turbines continues to grow, while the vessel is capable of installing turbines over 15 megawatts unlimited. As a result, recently confirmed charter rates have risen steadily, reaching as high as EUR 350,000 per day. Given the nature of the WTIV market where a significant increase in supply is challenging. This trend is expected to continue for an extended period of time.

The company plans to focus on expanding its role in the growing fixed offshore wind development project in the domestic markets, particularly in the West and South seas of Korea. Offshore BU of Hanwha Ocean is exerting huge efforts to develop new products and original model fully harnessing latest technology to meet changing market demand and to connect such a development effort with future order.

Through friendly cooperation with key customers, the company will generate mutually complementary antibiotic relationship. The offshore BU plans to promote selective order-taking strategy, for large-scale projects, putting profitability at the highest priority, and we hope the strategy positively contribute to the company's future profit. The offshore BU will do our best to preempt the market and maximize the profit by maintaining flexibility to any change in the conventional energy sources and the renewable energy market.

If you have any question on the specifics, please ask that question during the Q&A. Thank you for listening.

[Sang Yun Han, executive]

This concludes the briefing on business performance for the third quarter of 2024. Now we will take questions from the participants.

The first question is from Shinhan Investment Securities. The question is to do with the expenses. Other than the external cost factors like FX or LD, I'd like to know more about the internal cost factors, namely the investment or the cost that you have invested into stabilize the production and outsourcing fees.

So I believe that it is because of this internal expenses, internal costs that the pace of recovery for Hanwha Ocean is slower than the other companies. I know that the portion of LNGC is out of the total sales is increasing and there will translate into better margin going forward, but I'd like to know more about the speed of the recovery. So with regard to the expense, what is the current status? And what is your forecast?

[Unknown Executive]

The answer is, as of Q3 this year, the operating profit for the company is KRW 5.6 billion. And of that, we have maintained a conservative accounting status. A, we have reflected LD in advance for the project that we expect that there will be a delay in delivery. And also we have paid some amount to actually stabilize the process for internal and external vendors. So that includes the production stability fund that has been paid out to the internal and external vendors. And as you have rightly pointed out, that has contributed to the slowing down of the profit or the performance recovery versus peers.

And also the money losing for the not so much profitable vessels, they have a higher exposure to FX. So as the FX ratio or moving against our favor that debt much efficient can be translated to the additional loss. So on top of that, this year, we got the 3 rounds of operational suspension because of the major industrial [ incidents ]. And that also related to the fact -- so we had to spend a little bit more to catch up with the delay in the process. But starting from 2024, so starting with the preassembly processes, then these events are starting to make a difference, and they are currently being reflected.

[Sang Yun Han, executive]

Next question is from the CGSI. This is a follow-up question for the investment for the production stability. You mentioned that it was a one-off excess to further stabilize the production, but it seems that this forum expenses are occurring on a quarterly basis. So it has been ongoing from 2023, in 2024. So from the operations and the business perspective, this -- new must have been experiencing some improvement. But purely from the numbers perspective and those perspective, this kind of continuation of one-off expenses might mean that your timing of recovery of the performances will be later than the peers.

So as you have mentioned, that this kind of recovery will be reflected from the preassembly processes. Then how about you take a preemptive action and set aside some reserved in [ add backs ] that the performance is that you make can be fully recognized without any dilution and you can fully catch up with the pace of the recovery as other peers.

[Unknown Executive]

The answer is that the production stability fund will the month has been provided in PD fashion because of the strike of this labor union. And I believe that the competition is currently ongoing to secure the talent personnel out of the competition in the region. So the increase in the unit price is something that is inevitable and of course, that is contributing negatively to the improvement of other performance.

We have indeed set aside the reserve that is already being reflected, that is to prevent any further loss or the dilution of the performances that we are generating. Barring any external factors such as effects or the fluctuation of steel price then we do not expect that there will be any additional investment for the process sublimation.

And looking into the backlog, so out of the LNGC, well, LNGC backlog is about [ 51% ], 60% and the vessel prices of USD 185 million and as the associated sale price is [ KRW 1 million ]. So it is a money-losing proposition in the remaining vessels are at the market average price, and we can expect better profitability. So from 2025 and onwards, a condition that the production process -- construction process is stabilized, then we can expect to see quite a reasonable or more than visible profitability versus our peers.

[Sang Yun Han, executive]

Next question is from Tower Investment Security, and this is to do with the profitability of offshore business. And as mentioned and the progress update on the current construction project. And when do you expect the project to be completed and the ability of [ WTIV ], I think that I am interested to find out.

[Unknown Executive]

The answer is, according to our backlog, there are 7 vessels that are under construction, [ NMC, MP39, JFC ] and the WTIV vessels and the reactivation of the title action. So first off, with the WTIV. So we have completed the launching of the first WTIV in 2024. And we will be able to complete the project sometime in the mid January of '25. And as for the second vessel of WTIV, our target is to complete the delivery in September of '25.

As for the [ FOC ] in October, rather, that sales away from the shipyard and the completion is targeted for March of next year 2025. For the [ MP79 or the PSP ], the Petrobras. So [ FBSR ], the top module has been brought in and the integration is currently under way. So the PE79, so the localization is expected to happen in September of 2026, whether seeing a way to happen that time.

And SPU, the fixed platform unit down title. So the target is to complete everything about January '26 for the final delivery. And as for the profitability, so we maintain a very conservative accounting principles when it comes to the old offshore product. So we have already set aside some reserve. So if and when the production process continues as said that we do not believe that there will be a need for additional reserves.

[Sang Yun Han, executive]

The next question is about the borrowings. You said that many of deliveries that you will have for this year will be the heavy-tail. And many of that portion will be addressed this year. So I understand that, that will add a strain on working capital. But as it will be delivered, that means that there will be a lot for you to collect for this year. So I'd like to understand what will be the number of ships that you'll be delivering for this year and next year, will there be any change? And if there is any other reason for the increase in the borrowings may I know the reason why?

[Unknown Executive]

The injuries for the year 2024 for this year, the payment terms is, as you rightly mentioned, that it is more geared towards the heavy-tails. And because of the delay in the production process versus planned. So it is causing a bit of strain. So versus the operational expenses that we have already paid out versus the profit that or the revenue that we can expect, so there is a bit of a mismatch. So we are experiencing a number of the cash mismatch.

But once that is resolved, starting from 2025, and we will start delivery of the LNGC, the major vessel types. Then we believe that the mismatch will be resolved and the offers will improve and, therefore, reduce the borrowings amount significantly.

[Sang Yun Han, executive]

Next question is from Samsung Investment Securities, and it is to do with your recent acquisition and the need for the investment. First off, with the Philly shipyards, that I believe that the Philly shipyard is not perfect when it comes to the financials or the capital. So do you have any plans after your acquisition to replenish more funds or make a CapEx investment.

And the same question goes out to the company that you're acquiring in Singapore dynamic, do you have any plan to make any physical or financial investment?

[Unknown Executive]

So in case of Philly shipyards, the answer is the case of the Philly shipyards. So the merger process or the business integration process is not yet completed, even though we have received approval from the CFIUS. So it's not yet fully decided. But if I may share what we have found out during the due diligence process, we have actually found out there could be many areas that we can further improve the profitability. So that will be the area that we will definitely be making an investment so that the productivity level will be at par with that of Korea. But everything is still ongoing. So once still is completed and finalized, and we will make a plan and make a necessary investment.

And as for the dynamic, this important company, then the open purchase is currently ongoing as reported by the local media. So that means that we do not have any full detailed visibility to what is going on inside the company, but they are different than Philly shipyard because they are specialized in offshore side, so it is different.

[Sang Yun Han, executive]

Next question is from Nomura Investment Securities. The question is to do with the icebreaking LNGC for Russia. I know that the [ 3 ] ship has been completed. But because of the high OpEx, I know that it is a bit troublesome to handle this vessels.

[Unknown Executive]

The answer is, with regard to the Russia LNGC, so we are instigating the impact from the economic sanctions on Russia. And if there is -- and even when there is any purpose, then we will share that through this culture.

[Sang Yun Han, executive]

Next question is from Power Investment Security. And it is to do with the overseas workers. And what is the current number of overseas workers that you have hired and trained and put in the operation? And what is your projection by the end of this year and for a year 2025?

[Unknown Executive]

The answer is, in the early this year, we have established the annual projection of hiring international workers in the number of 730. But we have found out that the GLI, the global labor index has went up. So we have adjusted the plan to 300, and we have hired this workforce from Indonesia, Thailand and Vietnam, and they've started to come into the country from August of '24, and they have received the trainings on adjustment responsibilities. And starting from the second half of this year, they are starting to be inputted into the line. So it will help contribute to the further stabilized production or construction process.

[Sang Yun Han, executive]

Next question is from Shinhan Investment Securities. It is to do with the bottleneck. Is there any bottleneck that is creating any delay with regard to the instruments or the process blocks. I know that for the GLAC, so you're predicting the market expansion and the tanker, the shortage. So that is why you will have started on making our CapEx accordingly. So I'd like to understand more. about the consensus of instrumentation, the deckhouse, upper deck, how much is in vectored in-house, how much will be outsourced any additional investment required?

[Unknown Executive]

The answer is our -- for the processes before that or the preassembly processes at least most of it has been completed. So the post assembly process or the launching of the deck, I believe that has been done. So what is remaining is the post processing after than the launch of the dock. And it is going a bit slower than the forecast. And as for the BLAC, so there is no stability with reward to the supply and demand.

[Sang Yun Han, executive]

Next question is from NH Investment Securities that is to do with the Navel Ship. So I'd like to understand the progress of individual projects as much as you can share understand that there is the warship projects ongoing, both in Australian Navy and a submarine for Poland, any timeline that you can share?

[Unknown Executive]

The answer is for the domestic market or the domestic project, and we can share that the bidding process is currently ongoing for the first 2 vessels for the [ Opus back #4 ], I believe that the total size of the project will be around KRW 800 billion. And it's things go smoothly, then we can expect the contract to be signed within this year.

And the contentious KDDX project worth KRW 700 billion approximately. We believe that the final contract or who will be the time part for this contract will be pretty much finalized within this year. And I know that the governing authorities are considering the operationalization of KDDX on a timely basis and its conditional impact on the future export of the defense industry general -- in general.

And as for the international projects, as you've mentioned, there are projects, so many different proposals and the sales activities, the marketing activities are ongoing for such countries, it's Poland, Canada, Philippines and the Middle East. As for the time lines, of course, there are many factors that affect the time lines that is highly variable. But if I may share what has become a bit more clearer is that as for the Poland, so we expect the shortness to randomize in the second quarter of next year. And the RFP is something that we spent in the third quarter and we can sign the contract in '26. As for the Middle East project, RFP is something that we expect sometime in the third and fourth quarter of next year. And hopefully, we can sign the deal in the year.

As for Canada, so the RFI has been issued in the last September. So we are in the process of preparing the response of RFI. So with that, an RFP is something that we expect to see in the third quarter of next year '25 and the conject signing will happen in '28 as Canada is known to have longer break when it comes to business transactions. So that is why our forecast for the deal closure is 2028.

And as for Australia, we expect the shortlist to be finalized in the first quarter of '25, in the same RFP afterwards, and then we hope to sign the contract in '27.

[Sang Yun Han, executive]

Next question is from Korea Investment Security. So I do not believe that I have seen the deficit in the pretax income. I believe that it is mostly because both of the nonoperating loss during the third quarter, I'd like to understand where does it come from?

[Unknown Executive]

The answer is this is the interest payment for the borrowings that the company already have and the valuation gain and loss of the assets and the liabilities that the company has in foreign currency.

[Sang Yun Han, executive]

Next question is from the Nomura Investment Securities. So I understand that you own 1 drillship, what is your plan for the operation? Is there any update?

[Unknown Executive]

The answer is, yes, we do own 1 drillship that it is in Brazil, the Petrobras and the charter agreement has been signed and operation is currently under preparation. We expect the ship to set sale next year sometime in October or November time frame.

[Sang Yun Han, executive]

The next question is from IM Investment security and it's to do with the Naval Ship. I understand that Poland and Australia, so the deals held the bidding process is currently underway. I know that you have participated in the bidding not together with the competition, but separately. And then at the Polish authority then the media are concerned about the overcompetition. And do you plan to maintain your current status of -- applied for the bidding independently any change in your future strategy.

[Unknown Executive]

The answer is when it comes to the export in the defense industry. So sometimes you go G2G, sometimes you go B2G. So depending on the who the counterpart is that the preferred method could vary. So there are some countries that prefer G2G. And in case of Korea, it has been conventionally B2G. And we are fully aware of the concerns raised in the Poland. And because to respond to the situation, we are in close collaboration with the government authorities, but still it is work in the making, so it is too early to share.

[Sang Yun Han, executive]

Next question is from Powered Investment Securities, and it is to do with the container. I understand that from your presentation that there are some lighters that are yet to absorb to making a late move. So you expect that there could be additional order. So what is your expected order volume for this year? And where is the valuable slot? And you said that you will maintain a backlog of 3 years' time. So what will be the slot valuable for 2028 for LNG?

[Unknown Executive]

The answer is, as for the valuable slot for the containers. So there are several slots left for the delivery of the second part of '27 and LNGC, the [ SOS ] for '27 is all gone. So there are some left for '28.

[Sang Yun Han, executive]

Next question is from Shinhan Investment Securities. So what is the target margin per vessel type? I'm asking this question because I've noticed that you are engaging in the selective order taking based upon the profitability versus your former entity of [ DSMC ] I'd like to understand better about the profitability by a vessel time. And if you can disclose the target margins for the offshore, then I would appreciate that as well.

[Unknown Executive]

The answer is, of course, that the exact margin per vessel type is kind of tricky to disclose. But generally, the LNGC has the highest profitability. As for the other vessel types, containers, well, the profitability was very low in year '23, but has been up in '24, so it is now higher than tanker. So if I may give you the order of the profitability, the highest is LNG followed by container and tanker.

As for the offshore, of course, I cannot disclose any single figure that will encompass all the offshore. But what I can share with you is our aspirational target is that we want to make sure that we have a double-digit margin for the projects.

[Sang Yun Han, executive]

Next question is from Nomura Investment Securities. And it is to do with the Russia icebreaking LNG. I understand that the contract has been dissolved. And can you -- should we sell the vessels? Or is something ongoing?

[Unknown Executive]

As the answer is that the arbitration is currently ongoing. So maybe we can explore the options but not oversee. So we cannot take any definite action as of now.

[Sang Yun Han, executive]

The next question is from Korea Investment Security and it is to do with the vessel price. I know that you have for the 6 vessels for the most to be delivered in '27. And can I have an idea of what will be the price of the vessels because the competition have secured volume in Jan to July and the price per vessel was about $220 million. So will there be any differences in the best of price. I believe that the size of the vessel could be quite similar. And it is because the supplier is from the country.

[Unknown Executive]

The answer is that the there is a so variability of the vessel price depending on the number of repairs and the specification of the lasting bridge. So the degree of the flexibility of the variability could be as high as USD 20 million. I don't know about the exact specification of the competition vessels. But I can share with you is that our vessels to be supplied to the mask is that the sophistication is in the medium range, middle range.

[Sang Yun Han, executive]

Next question is from Tower Investment Securities. So I know that it's a bit too early, but we are in the process of preparing for the annual forecast. So can you share your revenue forecast and the production volume forecast. Will that go up or down versus what you have expected for the whole year of '24?

[Unknown Executive]

The answer is, as for the revenue that we expect it will be similar in the KRW 11 trillion range, KRW 11 trillion -- toward high KRW 11 trillion, considering the FX ratio and the external variability on the external factors, then we believe that, that will be the range that we can expect to experience for the '25 and the production volume will be in the same range as this year.

[Sang Yun Han, executive]

Next question is from Shinhan Investment security and it's to do with the dynamic. I understand that your efforts to acquire dynamic isn't tends to lower the unit price for the offshore. So not for the immediate terms, but in the midterm, about 3 years down the road, what will be the impact that you can expect to cut the unit price? How much of the unit price deck you can lower with by harnessing the dynamic capabilities? And what will be the minimal capacity that you need to use to have the maximal benefit.

[Unknown Executive]

The answer is, of course, yes, it will bring about the tax reduction benefit, of course, and it all boils down to the unit price of the modules manufactured in Korea versus manufactured out of Korea, of course, I think would be the additional factor of the productibility. But when it comes to dynamic. So it's all boils down to what are we manufactured by dynamic and how much of it. But definitely, there is a different show in terms of the labor costs associated. So we can expect benefit, but we do not know exactly how much.

[Sang Yun Han, executive]

Next question is from NH Securities and has to do with the performance of plant division that you have recently acquired. Do you expect the performance that you have seen in the third quarter to be maintained in the future? So what is the order backlog based upon the revenue number?

[Unknown Executive]

The answer is the order backlog is KRW 530 billion, and we expect an additional KRW 200 billion of sales during the fourth quarter of this year, and the order backlog with the KRW 300 billion on as of now, but it could be higher than that is our efforts to have additional order during those periods is successful.

So for the second half of this year, the revenue is expected at KRW 350 billion. So far, we have done KRW 140 million. So for the fourth quarter, we into KRW 200 billion in incremental revenue.