Nomura upgrades Samsung Heavy Industries to Neutral, but cuts target price to KRW25,000

Overview

Nomura published a company research report on Samsung Heavy Industries, upgrading the rating from Reduce to Neutral while cutting the target price from KRW27,000 to KRW25,000. The core view is that after the share price corrected sharply from its April 24 peak, the current valuation has reached a more reasonable level; however, because expansion by Chinese shipyards may continue to pressure newbuild prices, the report did not further upgrade the stock to Buy.

Core views

The report's main views include: first, although 2Q26 operating profit grew sharply year on year, it came in below market expectations due to a one-off retirement pension cost; second, new orders and operating profit are still expected to show strong growth in 2026, especially driven by F-LNG and offshore projects; third, although the current valuation has retreated from previous levels at about 3.7x 2026F P/B, investors still need to weigh Chinese shipyard expansion, pricing pressure, and US Navy-related opportunities.

Analysis framework

The report adjusts SHI's 12-month investment rating by combining a review of quarterly results, order intake and segment revenue forecasts, a P/B valuation framework, target price sensitivity factors, and industry competition risks. The analysis focuses on the reasons for the 2Q26 earnings miss, 2026F order growth, offshore and shipbuilding segment revenue, the timing of F-LNG projects, and the reasonableness of the premium of the target P/B versus the implied core shipbuilding P/B.

Methodology notes

• Valuation methods12-month forward P/B valuation

  Target price = 12MF BVPS × target P/B

  The target price of KRW25,000 is based on 12-month forward BVPS of KRW7,456 and a target P/B of 3.35x; the target P/B represents a 4.3% premium to SHI's implied core shipbuilding P/B of 3.21x, mainly reflecting US Navy-related opportunities.

• Earnings AnalysisComparison of earnings with consensus expectations

  Variance of actual operating profit versus market expectations

  2Q26 operating profit of KRW325bn was about 13.2% below the Quantiwise consensus expectation of KRW374bn, with the report attributing part of the miss to an additional KRW25bn retirement pension provision.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• Samsung Heavy Industries 010140.KS

  Covered company in the report; Korean shipbuilding and offshore engineering company

  Strengths

  F-LNG projects are driving growth in offshore orders; 2026F new orders and operating profit are expected to rise sharply; participation in MASGA and partnerships with General Dynamics and Vigor create US Navy opportunities.

  Weaknesses

  2Q26 operating profit was below consensus expectations; margins on incremental capacity are lower than the company's average shipbuilding margin; the target price was cut.

  Comparison

  The share price has corrected 33.4% from the April 24, 2026 peak, while the KOSPI rose 3.6% over the same period; the stock is currently trading at about 3.7x 2026F P/B.

  Risks

  Continued expansion by Chinese shipyards may pressure newbuild prices; if earnings fall short of expectations, the target price may not be achieved.

Key data

• Report date2026-07-26Date disclosed on the report cover.
• Rating changeUpgraded from Reduce to NeutralThe upgrade was due to valuation becoming more reasonable after the recent sharp share price decline.
• Target priceKRW25,000Cut from KRW27,000.
• Closing priceKRW22,900Price date is 2026-07-24.
• Implied upside+9.2%Calculated from the target price and closing price.
• 2Q26 revenueKRW3.2tnUp 20.4% YoY.
• 2Q26 operating profitKRW325bnUp 58.7% YoY, but 13.2% below consensus.
• 2026F new ordersUSD17.0bnExpected to grow 115.7% YoY.
• 2026F revenueKRW13.0tnExpected to grow 22.2% YoY.
• 2026F operating profitKRW1.4tnExpected to grow 58.4% YoY.

Impact & implications

The rating upgrade indicates that the share price correction has improved the risk-reward profile, but the target price cut and Neutral rating also suggest limited upside. The investment implication is that SHI's order and earnings growth remain supported, particularly by F-LNG, offshore projects, and US Navy opportunities; however, newbuild prices, capacity expansion, and competition from Chinese shipyards still limit further valuation re-rating.

Risks

• Continued expansion by Chinese shipyards may put downward pressure on newbuild prices and industry profitability.
• Operating margins contributed by incremental capacity are lower than SHI's average shipbuilding margin, which may affect earnings quality.
• If orders for projects such as F-LNG, Delfin II, and Western fall short of expectations, the 2026F order growth assumption may come under pressure.
• Macro, market, or company earnings deviations from estimates may all hinder achievement of the target price.

What to watch

• Whether 2026 new orders reach the USD17.0bn forecast and the pace of follow-on order wins after the company's completed 1H26 orders.
• Progress of F-LNG projects, especially potential orders for Delfin II and Western in 4Q26F.
• The actual impact of Chinese shipyard expansion on newbuild prices.
• Whether US Navy-related opportunities and MASGA cooperation translate into tangible orders or a valuation premium.
• Whether operating margins can improve in 2H26, especially the profit contribution after ramp-up of incremental capacity and offshore revenue.