Samsung Heavy Industries: Upside from Tech Innovation

Introduction

As of October 28, 2025, Samsung Heavy Industries has recorded a +116% year-to-date increase, outperforming even Samsung Electronics (+85%) within the Samsung Group. In the last month of October alone, it rose by +40%, and 17 securities firms have unanimously raised their target prices.

However, the truly interesting part is that this stock price surge is not based on a simple demand cycle but on structural changes. We will examine how the technological development of localizing cargo containment systems (KC-2C) will fundamentally improve Samsung Heavy Industries’ profitability, and how much further the stock price has the potential to rise with the expansion of the FLNG market.

1. Current Stock Price Level: Has It Risen Too Much?

Current Stock Price: 29,100 KRW (as of October 28, 2025)

The first thing to realistically assess is that there has already been a significant rise. From around 13,400 KRW at the beginning of this year, it has risen by +117%. This raises the question of whether now is the time to buy or to realize profits.

The key is how you view the valuation metrics.

Currently, Samsung Heavy Industries’ PBR (Price-to-Book Ratio) is 6.55x. This is certainly high compared to the shipbuilding industry average of 3.5-4.5x. It might make you wonder, “Isn’t it already expensive?”

But let’s look at it from a different angle. In the shipbuilding industry, it is more important to look at the combination of PBR and ROE (Return on Equity) rather than PER (Price-to-Earnings Ratio). This is because Samsung Heavy Industries’ net income is distorted compared to its operating income due to valuation losses on derivatives.

According to securities firm analysis, Samsung Heavy Industries’ ROE is expected to reach 25.9% in 2027. An ROE of 25.9% is higher than that of the financial sector (15-20%) and much higher than that of general manufacturing (10-15%). If this level of ROE is achieved, the current PBR of 6.55x is likely not excessive.

2. Core Growth Driver: What is Cargo Containment System Localization?

A Small but Continuous Profit Improvement Factor

The commercialization of KC-2C (Korean LNG Cargo Containment System) announced by Samsung Heavy Industries on October 26 may seem like a technology development news, but it is actually a structural change that will fundamentally alter the company’s profitability.

For every LNG carrier built, Samsung Heavy Industries has paid about 5% of the ship’s price in royalties to the French company GTT. The price of a large 174,000㎥ LNG carrier is about 350 billion KRW, from which 13 to 17 billion KRW is paid in royalties.

To understand how big of a burden this is, think of it this way. The net profit margin of a shipyard is usually 5-10% of the ship’s price. This means that the profit from building one LNG carrier is 10-14 billion KRW, and more than 10 billion KRW of that is lost to royalties. This means that more than half of the profit from building a ship goes into GTT’s pocket.

Over the past 30 years, Korean shipyards have paid a cumulative 7.4097 trillion KRW in royalties to GTT. Samsung Heavy Industries alone has paid about 2.4 trillion KRW.

Profitability Improvement Scenarios

What will happen when the localization of cargo containment systems is fully applied to large LNG carriers?

Conservative Scenario (2027, 30% localization rate)

• Annual royalty savings: 45.5 billion KRW
• Operating profit margin improvement: +0.41%p
• Operating profit margin after improvement: 12.60% (from 12.18% → 12.60%)

Neutral Scenario (2028, 60% localization rate)

• Annual royalty savings: 91.0 billion KRW
• Operating profit margin improvement: +0.83%p
• 5-year cumulative savings (2028-2032): 455.0 billion KRW
• Operating profit margin after improvement: 13.01%

Optimistic Scenario (2030, 100% localization rate)

• Annual royalty savings: 156.0 billion KRW
• Operating profit margin improvement: +1.42%p
• Operating profit margin after improvement: 13.60%

Even this level of improvement is significant. This is because a 1%p improvement in operating profit margin means an increase in operating profit of about 110 billion KRW, assuming the same sales.

More Than Just Royalty Savings

However, the true value of localizing cargo containment systems is more than just royalty savings.

First, it secures price competitiveness. Not paying royalties allows that amount to be reflected in the ship’s price. This creates a 5% price reduction capacity, enabling them to win orders at a lower price than competitors. This, in turn, leads to increased sales.

Second, it means technological independence. For the past 30 years, Korean shipyards have been dependent on the technology of the French company GTT. If GTT proposed unfavorable contract terms, Korea could not refuse. The success of KC-2C will allow them to break free from this structural weakness.

Third, it is an entry into the next-generation market. LNG carrier technology can be expanded to next-generation eco-friendly fuel carriers such as liquefied hydrogen (LH2) and ammonia (NH3). The company that secures the technology first will lead the future market.

3. FLNG (Floating LNG): The Real Money-Maker

While the localization of cargo containment systems is important, the bigger opportunity lies in the FLNG (Floating LNG) market.

What is FLNG?

FLNG is a massive LNG production and storage facility floating on the sea. It liquefies, stores, and transports natural gas extracted from offshore fields where it is difficult to lay gas pipelines on land.

If an LNG carrier is “package delivery,” FLNG is like “floating the production plant itself on the sea.” The technological difficulty is incomparably high, and the price is enormous.

Market Size and Profitability

The important thing is profitability.

• LNG Carrier: Price 350 billion KRW, net profit margin 5-7% → 17.5-24.5 billion KRW profit
• FLNG: Price 500-600 billion KRW or more, net profit margin 15-25% → 75-150 billion KRW profit

The profit from one FLNG is equivalent to that of 3-4 LNG carriers. Even with the same construction assets and manpower, much more money is made from FLNG.

Current Order Status and Future Prospects

Current Status:

• Cedar FLNG (Singaporean owner): 4 trillion KRW contract
• Dolphin FLNG (US Venture Global LNG): 4 trillion KRW contract
• Global FLNG market: Samsung Heavy Industries is virtually the exclusive supplier

Future Prospects:

• Mozambique Project: 20 billion USD (approx. 27 trillion KRW) scale, force majeure lifted in 2024 → high possibility of construction order for Samsung Heavy Industries
• MASGA (Make American Shipbuilding Great Again): Trump administration’s project to support the US shipbuilding industry → expectations for Korea-US cooperation
• Beneficiary of the energy transition era: LNG demand continues despite carbon neutrality goals → rising demand for FLNG construction

If FLNG orders proceed well, there is a high possibility that sales and profits will surge in 2026-2027.

4. Basic Fundamentals: Already Improving

2025 Performance

• 3Q Operating Profit: 238.1 billion KRW (YoY +99%, +11.8% vs. consensus)
• Operating Profit Margin: 8.9% (+3.9%p improvement YoY)
• 11 consecutive quarters of surplus: A completely different company from the sluggish performance in the first half of last year
• Order Status: 78% of the annual target of 5.8 billion USD in the commercial ship sector achieved (341.1 billion KRW tanker order from a Liberian owner)

2026 Outlook

Securities Firm Consensus:

• Expected Sales: 11 trillion KRW (YoY +5-10%)
• Expected Operating Profit: 1.34 trillion KRW (YoY +50-60%)
• Expected Operating Profit Margin: 12.2% (excellent compared to the industry average of 8-9%)

It’s not just that sales are growing; profits are growing faster than sales. This is due to product mix improvement (decrease in low-margin container ships vs. increase in high-margin LNG and offshore).

5. Stock Price Upside Potential: Scenario-Based Analysis

Current Stock Price Position Assessment

Looking at the indicators alone, one might think, “Hasn’t it risen enough already?” However, there is evidence that the fundamental improvement has not yet been fully reflected in the stock price:

• Securities firm target price 30,500 KRW vs. current 29,100 KRW (4.8% upside)
• 17 securities firms raised their target prices in October (high reliability)
• Sangsangin Investment & Securities analysis: “The stock price, with a PBR of 3.8x and PER of 22x, has not yet fully reflected the expectations for the efforts.”

Scenario-Based Stock Price Outlook

1. Mildly Positive Scenario: 26,500 KRW → 31,000 KRW

• Period: End of 2025 ~ First half of 2026
• Upside Potential: +6.5%
• Drivers:
  • Consensus re-rating after 4Q earnings announcement
  • Reconfirmation of achieving annual order target
  • This is a short-term movement that has already begun

2. Main Scenario: 31,000 KRW → 34,000 KRW

• Period: 2026 ~ 2027
• Upside Potential: +16.8% (but +10-15% from the current price)
• Drivers:
  • FLNG sales begin in earnest (acceleration of Cedar FLNG delivery)
  • Effects of cargo containment system localization become visible (cumulative royalty savings)
  • Margin rate enters the mid-12% range through continuous product mix improvement
  • Achieving 1.34 trillion KRW operating profit in 2026 → PBR normalization

This scenario is the most realistic because it is based on the natural monetization of projects that are already in progress.

3. Optimistic Scenario: 34,000 KRW → 42,000 KRW

• Period: 2027 ~ 2028
• Upside Potential: +44.3% (but +35-40% from the current price)
• Drivers:
  • New FLNG orders (Mozambique, MASGA projects)
  • Full application of cargo containment system localization (maximization of royalty savings)
  • Operating profit margin reaches the mid-13% range
  • ROE 25% or more → PBR re-evaluation

This scenario is a “best-case” situation full of expectations. To be realistic, the localization of cargo containment systems must be successfully commercialized, and new FLNG orders must be secured. The possibility is there, but it is not guaranteed.

6. Room for Valuation Re-evaluation

“Is a PBR of 6.55x Really High?”

Intuitively, it seems high. However, there are a few points to consider.

First, the high asset intensity of the shipbuilding industry. Shipyards have an extremely high fixed asset ratio. Therefore, it is normal for PBR to be higher in the shipbuilding industry than in other industries:

• HD Hyundai Heavy Industries PBR: 6.35x (lower margin)
• Hanwha Ocean PBR: 4.80x (lower profitability)
• HD Hyundai Mipo Dockyard PBR: 3.57x (limited business scale)

Second, there is room for ROE improvement. According to Meritz Securities analysis:

• Current ROE: Low 10% range
• 2027 Target ROE: 25.9%
• Appropriate PBR based on normal ROE (15-20%): 3.8x

The current PBR of 6.55x can be seen as pricing in the expectation that ROE will rise to the 25% level. If achieving this ROE is possible, the current valuation is reasonable.

Third, it is a cyclical upswing. LNG ship prices are at a historic high, and the FLNG market is expanding. The shipbuilding boom is likely to continue for the next five years.

7. Actual Investment Perspective: The Timing Issue

Short-term (3-6 months)

Strategy: Consider profit-taking or be cautious with new purchases

Reasons:

• Already up +40% in October alone
• +116% this year (excessive rise)
• Possibility of a correction

Target Price: 31,000-32,000 KRW (securities firm target price, minimum target)

At this level, it is not necessary to sell completely, but it is reasonable to realize some profits or hold off on additional purchases.

Mid-term (6-12 months)

Strategy: Track the materialization of FLNG sales, consider staggered purchases

Reasons:

• 2026 earnings improvement becomes visible
• FLNG project progress becomes clear
• Fundamental improvement is fully reflected in the stock price

Target Price: 33,000-35,000 KRW

This period is key to the stock price rise. If the 2026 operating profit exceeds 1.34 trillion KRW, the current valuation will be justified.

Long-term (1-3 years)

Strategy: Monitor the progress of cargo containment system localization, expect structural growth

Reasons:

• Cargo containment system localization is key to structural profitability improvement
• Continuous margin improvement through royalty savings
• Business expansion into next-generation markets (H2, ammonia)

Target Price: 36,000-42,000 KRW (optimistic scenario)

If the localization of cargo containment systems is successfully expanded to large LNG carriers, the operating profit margin could normalize to the 13-14% level after 2030. In this case, there is an upside potential of 30-40% from the current price.

8. Key Risks: Realistic Concerns

Technological Risks

Delay in commercialization of cargo containment system localization: In the past, the KC-1 cargo containment system was not chosen by shipowners due to insufficient technology verification. KC-2C also requires time for safety verification, and it may take 3-5 years to gain the trust of conservative shipowners.

Market Risks

Sudden change in global LNG demand: LNG demand could decline faster than expected due to accelerated energy transition, expansion of renewable energy, and global economic recession.

Sharp drop in ship prices: If concerns about oversupply arise as shipbuilding orders increase, ship prices could plummet. The recent collapse of container ship prices is a good example.

Competition Risks

Aggressive orders from competitors: Competitors such as HD Hyundai Heavy Industries and Hanwha Ocean are also focusing on FLNG and large ships. Increased competition for orders will increase pressure to lower prices.

Pursuit of Chinese shipyards: Chinese shipyards are also quickly catching up in LNG construction technology. If they lose out on price competitiveness, their market share could decrease.

Macro Risks

Exchange rate fluctuations: Ships are traded in US dollars. A weak won increases profits, but a strong won will hurt profitability.

Delay in MASGA project progress: The US shipbuilding reconstruction project could be shaken by political variables.

Conclusion: Stock Price Rise Created by Technological Development

Samsung Heavy Industries’ localization of cargo containment systems (KC-2C) is not just a technological development but a structural change that will fundamentally alter the company’s profitability.

Key Points

1. Royalty Savings: 45-156 billion KRW per year (depending on the scenario)
2. Margin Improvement: 0.4-1.4%p increase in operating profit margin
3. Technological Independence: Freedom from dependence on GTT
4. Securing Future Markets: Business expansion to H2 and ammonia carriers

Stock Price Outlook

Investment Conclusion

The current stock price (29,100 KRW) has already risen significantly, but the fundamental improvement has not yet been fully reflected.

• Short-term investors: Consider profit-taking at 31,000-32,000 KRW
• Mid-term investors: Track the materialization of FLNG sales, target 33,000-35,000 KRW
• Long-term investors: Upside potential to 36,000-42,000 KRW if cargo containment system localization is successful

If the localization of cargo containment systems is technologically successful and begins to be recognized in the market, it will not be just a positive factor but a variable that permanently strengthens the company’s competitiveness. The profits that have been lost to France for the past 30 years will now belong to a Korean company.

This is the true value growth story of Samsung Heavy Industries.

References

1. Samsung Heavy Industries (A010140) | Consensus | Corporate Information | Company Guide
2. Asia Business Daily CORE - Samsung Heavy Industries follows Samsung Electronics
3. Comparative Analysis of Financial Statements of 3 Shipbuilding Companies - Naver Premium Contents
4. Samsung Heavy Industries - Consensus - Company Monitor
5. Chosun Ilbo - Samsung Heavy Industries Applies Korean Cargo Hold ‘KC-2C’ to LNG Carriers for the First Time
6. Infostock Daily - Samsung Heavy Industries, Continued Growth Expected for FLNG… Target Price ‘Upgraded’

Disclaimer: This article is for general informational purposes only and does not constitute investment advice. The responsibility for all investment decisions rests with the investor, and the author assumes no liability for any direct or indirect losses incurred.