Hanwha Ocean Co., Ltd. (A042660) Earnings Call Transcript & Summary

Good afternoon. I am Han Sang Yun, Head of IR at Hanwha Ocean. I would like to thank everyone for joining the call on Hanwha Ocean's 2025 Q3 performance. Also joining the call, we have Shin Yong-In, Head of Finance Office; Bang Chang Min, Head of Planning and Management Team; [indiscernible] Head of Strategy Planning Department; Kim Hoonmin, Head of Commercial Vessel Sales Team; Cho Yongseok, Head of Offshore Business Development; Kim Hojoong, Head of Naval Ship Marketing Department; and [indiscernible], Head of E&I Planning. During the call, the company will explain the business performance, market condition and order outlook, followed by Q&A with participating analysts. Now the company will brief you on Q3 2025 business performance and highlights.

Good afternoon. I am Shin, Yong-In, CFO of Hanwha Ocean. I will present on the business performance and highlights. I will brief you on the Q3 '25 performance. Please turn to Pages 5 and 6 of the presentation. On a consolidated basis for Q3 '25, the company recorded KRW 3,023.4 billion in sales, KRW 289.8 billion in operating profit and KRW 269.4 billion in net profit. Q3 sales declined by 8% Q-on-Q, mainly reflecting a 7-day decrease in operating days due to the 2-week summer vacation period. Operating profit declined by 22% Q-on-Q to record KRW 289.8 billion due to a higher fixed cost burden from fewer operating days as well as one-off expenses such as KRW 25 billion related to Petrobras FPSO incidents and KRW 25 billion from the labor agreement settlement. Please turn to Page 7 for financials. The total assets as of the end of Q3 '25 has increased by KRW 230.2 billion Q-on-Q to KRW 18,533.9 billion, and cash and cash equivalents has decreased by KRW 605.8 billion to KRW 441 billion. As of the end of Q3 '25, total liabilities have decreased by KRW 20 billion Q-on-Q to KRW 13,057.9 billion, and the total debt declined by KRW 144.2 billion Q-on-Q to KRW 5,172.4 billion. Net debt increased by KRW 750 billion Q-on-Q to KRW 4,731.4 billion. The increase is mainly due to a decline in operating collections as the ship deliveries and related payments for offshore vessels and naval ships were concentrated in the previous quarter. Additionally, cash and cash equivalents decreased following expenditures linked to progress payments received in June for naval ships. Looking ahead, net debt is expected to rise slightly in Q4 '25, but as deliveries of high-priced LNG carriers continue in '26, the company anticipates an improvement in cash flow and a gradual reduction in total borrowings compared to '25. The liabilities to debt ratio has declined slightly Q-on-Q to 238%, which is in line with the shipbuilding industry average, and the company maintains solid financial structure. Next, from Page 8 and onward, I will share with you the Q3 '25 business performance and the whole year outlook by segment. First, the commercial vessel business unit for Q3 '25. The sales from the commercial vessel BU declined by 12% Q-on-Q to KRW 2,463.9 billion, reflecting fewer operating days due to seasonal factors, including the summer vacation period. Q3 profit declined Q-on-Q to record KRW 307.1 billion due to higher fixed cost burden from lower sales. Nevertheless, it maintained a double-digit operating margin, supported by a continued improvement in product mix centered on LNG carriers. Looking ahead, the commercial vessel BU is expected to continue accounting for over 70% of total company revenue with LNG carriers representing around 60% of total sales. As the revenue contribution from projects contracted since 2023 continue to rise, recurring profitability is also expected to remain solid. Next, naval ship business. The revenue increased by 58% Q-on-Q to KRW 375.5 billion. And in addition to the lead ship of Changbogo-III batch 2 program already under construction, the cost input for the second ship has started in earnest this quarter. The operating income increased by 57% Q-on-Q to KRW 28.7 billion, maintaining solid profit margin this quarter as well, supported by performance in the core ship classes and MRO services. As for the next quarter performance, the revenue is expected to be in the similar range as that of this quarter and the profit margin to remain stable with continued construction of the second ship of Changbogo-III Batch 2 program and the initiation of the construction of fifth and sixth ships of Ulsan Class Batch 3. Lastly, offshore business. Q3 revenue recorded KRW 102.4 billion, reflecting lower sales as major ongoing projects enter their completion phase. During the quarter, a one-off expense of KRW 25 billion related to the Petrobras FPSO incident was recognized, resulting in an operating loss of KRW 48.1 billion. In Q4, the revenue is expected to decline slightly due to project deliveries and deferred new orders. However, a modest return to profitability is anticipated, driven by the securing of change orders to offset previously incurred costs. This concludes the briefing on business performance by segment. We will hear from each business unit on respective market condition and order outlook.

Good afternoon. I am Kim, Hoonmin, Head of Commercial Vessel Sales team. I'll brief you on the market condition and order outlook for the commercial vessel BU. Please turn to Page 12 of the presentation. The war in Ukraine ongoing since '22, the prolonged Red Sea crisis and the U.S. government's strengthened tariff and trade measures against China, along with emerging sanctions targeting China's shipbuilding and shipping sectors, have continued to exert multilayered geopolitical pressure on global shipping and shipbuilding markets. Consequently, uncertainty surrounding the shipbuilding industry has risen to unprecedented level. Nevertheless, as of Q3 this year, the company has maintained solid order momentum, securing a total of 31 vessels, including 6 LNGC, 12 VLCC, 13 container ships worth approximately KRW 6.04 billion despite the overall slowdown in global newbuilding activities. Since the launch of the Trump administration, U.S. tariff policies have had a direct impact on the shipbuilding and shipping industries. In particular, as the U.S. trade representatives move to impose port entry tariffs and strengthen sanction on Chinese-built vessels, global shipowners have generally adopted a wait-and-see approach in the newbuilding market until special policy directions are finalized. At the same time, the U.S. is accelerating its energy export expansion and the resumption of LNG project signaling a recovery in demand for the transportation of fossil fuels and alternative energy sources. Consequently, new building demand for key leading vessel types such as LNGC, VLCC and VLEC is gradually rebounding, and the company continues to pursue a selective profitability-focused order-taking strategy in response to this trend. The IMO's recently proposed midterm decarbonization measures have also drawn significant attention from the market. The official adoption of the IMO Net Zero Framework originally scheduled for October 17, '25, has reportedly been postponed by 1 year as the session was suspended due to differences among major member states and opposition from countries such as the United States and Saudi Arabia. As a result, the short-term uncertainty has increased regarding the timing and specifics of the future regulations. Nevertheless, there is a growing consensus across the industry that the long-term direction towards expanding ecofriendly propulsion vessels and transitioning to alternative fuels remains unchanged. The company is closely monitoring the market developments and will continue to strengthen the competitive edge by leveraging the proven capabilities and technological expertise in ecofriendly shipbuilding. While we will not disclose a specific order target for this year, we plan to continue our profitability-focused selective order intake centered on LNG carriers, VLCC, VLAC/VLEC and container vessels and to maintain a stable order backlog equivalent to more than 3 years of work through the year-end. Next, on market conditions and order prospects by vessel types, beginning with the LNG carriers. The LNG carrier market has recently shown a somewhat subdued trend as charter rates remained low relative to newbuilding prices. However, with new LNG export terminals in the U.S. entering full operation and the resumption of long-term LNG contracts, there are emerging signs of improvement in charter rates and a reduction in the number of unchartered vessels. At the same time, under the current low rate environment, the retirement of older steam turbine LNG carriers has begun in earnest this year, which is expected to gradually drive newbuilding demand for replacement vessels. While the postponement of the IMO's midterm decarbonization measures introduces some uncertainty, we expect sustained medium- to long-term demand for ecofriendly LNG carriers, particularly those equipped with the LNG dual-fuel propulsion systems. The company will continue to strengthen its project-based order-taking capabilities in the LNG carrier segment. Next, the VLCC market update. Currently, the VLCC show a very slow, very low order book to fleet ratio, indicating strong structural replacement demand. However, the weak charter rates, uncertainty surrounding U.S. energy policy and the possibility of tighter ING GHG regulations have acted as factors delay new orders. Nevertheless, with the signs of a rebound in charter rates and rising crude oil demand in the Middle East and India, conditions are gradually emerging for a potential recovery in new building orders. In particular, as VLCC orders have begun to pick up among Korean shipbuilders, the company intends to capitalize on this opportunity by focusing on selective profitability-driven orders. Next, gas carrier market updates. The VLGC segment has shown a modest slowdown in the short term following a wave of large-scale order over the past 2 years. However, the U.S.-Asia LPG exports remain robust and the major shipping companies committed to adopting dual-fuel vessels continues to hold firm. In the VLEC segment, ethylene transport demand is increasing in line with ethane cracker capacity expansions by Asian petrochemical companies, suggesting that new orders may once again concentrate among Korean shipbuilders. Meanwhile, in the VLAC segment, projects involving blue and green ammonia are emerging as mid- to long-term demand drivers. However, as the number of visible new orders remain limited, a selective and strategic approach is still required. Lastly, update on containerships. Orders for large container vessels have already been largely completed relative to the existing fleet. And going forward, new orders are expected to shift towards small and midsized ecofriendly container ships under 10,000 TEU. Recently, European carrier alliance structuring and the navigation restrictions in the Red Sea have placed pressure on global supply chains, raising concerns about temporary oversupply over the situation once the situation normalizes. Nonetheless, replacement demand for container vessels remains closely tied to the industry to shift toward improved fuel efficiency and ecofriendly propulsion regardless of the postponement of the IMO's midterm decarbonization measures. The company aims to expand high-quality orders in the segment, leveraging its technical credibility and cost competitiveness. In summary, while policy and geopolitical risk remain elevated, the long-term trend towards ecofriendly propulsion vessels continues to hold firm despite the IMO's decision delay. At the same time, underlying demand for new buildings, particularly in LNGC, VLCC and VLEC is entering a recovery phase, and the company will remain focused on selective profitability-driven orders and advancement of ecofriendly and alternative fuel technologies. Now let's hear from the Naval Ship BU.

Good afternoon. I am Kim, Hojoong, Head of Naval Ship Marketing Department. Today, maritime disputes are becoming increasingly persistent and prolonged. The Russia-Ukraine war continues to affect security dynamics and the shipping routes in the Black Sea, while conflicts in the Middle East pose growing threats to the safety of major maritime trade routes. Territorial disputes in the southern waters have escalated into competition over resources and trade. In fact, the number of maritime conflict incidents has risen sharply from around 20 cases per year in the early 2010s to more than 80 cases annually today, representing an increase of threefold to fourfold. Going forward, maritime control will become a core element directly linked to national security. Korea too faces rising tensions in nearby waters, which pose significant security challenges. As maritime disputes intensify, global naval expansion and demand for warships are increasing rapidly. Across the Pacific region, a renewed power struggle reminiscence of the cold war era is unfolding between the 2 major powers. One side is pursuing an anti-access area denial strategy to restrict maritime expansion, while the other is building network-centric capabilities based on distributed maritime operations approach. Amid this arms race, many nations are strengthening their naval forces, leading to steady growth in global demand for service vessels and submarines. In this environment, Hanwha Ocean is proactively seizing opportunities in the global naval ship market. In August, the company achieved a significant milestone by being shortlisted for the Canadian Petrol submarine project, a program valued at approximately KRW 60 trillion. The company possesses diverse submarine construction technologies and outstanding delivery competitiveness. While a typical submarine project takes about 9 years from contract signing to delivery, the company has capabilities to reduce the time line to 6 years through advanced design expertise and optimized production processes. Building on these strength, the company has presented a detailed proposal to deliver 4 next-generation submarines to Canada by 2035. The company's proposed submarine incorporates a state-of-the-art automation and remote monitoring systems, allowing it to operate at full mission capability with a crew of only above 30. This represents an efficient solution well aligned with the practical needs of the World Canadian Navy, which faces challenges in personnel recruitment. In addition, the company is actively pursuing a localization strategy, having established partnerships with 35 Canadian companies. This project goes beyond a simple export contract. It is expected to serve as a platform to deepen the strategy of partnership between the 2 nations. The company remains firmly committed to working in close collaboration with the Korean government, the national assembly and the local partners to achieve the ultimate goal of securing the CPSP contract. Meanwhile, the Polish Orca submarine project is approaching a key milestone with proposed submission scheduled in the near term and the selection of a preferred bidder expected as early as later this year. Although several European competitors are participating, the government-to-government negotiations are actively underway, leveraging its proven submarine technologies, shipbuilding capabilities and tailored proposals. The company will work closely with the government to achieve the best possible outcome. In addition to Poland, demand for submarines and service vessels continues to grow steadily across Europe, the Middle East and Southeast Asia. In line with these developments, the company is also accelerating the development of next-generation strategic service vessels. These vessels are designed as advanced naval assets capable of rapidly and flexibly performing diverse missions, including response, detection, surveillance, engagement and recover in the future maritime battlefields. Beyond the role as conventional combat ships, these next-generation strategic service vessels are envisioned to meet the evolving requirements of modern warfare while establishing themselves as a highly competitive platform in the global warship export market, underpinned by cutting-edge technology and robust design capability. Amid the rapidly changing security landscape, Hanwha Ocean aims to pioneer new markets for naval exports by advancing 2 key pillars: our success in global submarine projects and the development of next-generation strategic surface vessels. Going forward, we will further enhance our competitiveness in the naval ship business, building on our proven technological expertise, robust localization strategy and extensive naval operation experience. Lastly, let's hear from the offshore BU.

Good afternoon. I am Cho, Yongseok, Head of Business Development. Please turn to Page 14. I will brief you on the changes in the global energy and offshore markets and the resulting outlook for the oil and gas facilities, offshore plant and renewable market. According to the International Energy Agency, Brent crude, which averaged USD 68 per barrel in September this year, is projected to decline to around $52 per barrel in the first quarter, first half of 2026 due to the increased supply. However, the oil prices, which has been on a downward trend, have recently rebounded following the announcement of additional sanctions against Russia, reflecting heightened uncertainty in the market. Natural gas prices are also expected to face downward pressure driven by expanded production, particularly in the U.S. Nonetheless, major energy companies anticipate that while short-term oversupply risk remain, global energy demand will increase by approximately 25% by 2050, supported by rising living standards in developing countries, which is expected to offset supply growth. Similarly, the OPEC General Secretary in a recent interview projected that global energy demand will rise by about 23% by 2050, with oil remaining a 30% share of the energy mix. He emphasized that meeting this demand would require a total investment of around USD 18.2 trillion. Given these factors, the company expects a favorable mid- to long-term business environment for its core offshore operations, including FPSO and FLNG, which are closely linked to the traditional energy development. Let me now turn to the market trends by offshore product segment. Starting with the FPSO market. Oil majors such as Petrobras continue to lead the sector, focusing on the deep water oil fields in South America and West Africa. Recently, a new FPSO project for Brazil's Buzios field was announced for bidding, extending the pipeline of large-scale opportunities. According to the industry sources, such as Restart Energy, a series of FPSO projects are expected to be proposed and approved between '25 and '27 with approximately 65% of the total contract volumes anticipated to come from South America and West Africa. In 2025 alone, 11 FPSO projects are projected to reach final investment decision, including 5 newbuild projects. The number of newbuild FPSOs is expected to gradually increase to around 9 in '26 and 12 in '27. The next is the FLNG market. The U.S., the new and -- in the U.S., the new and expansion onshore LNG project, including Tech Mines LNG and Corpus Christi have recently received additional approvals. Meanwhile, the projects such as Commonwealth LNG and Texas LNG are moving forward with full-scale EPC contracts contributing positively to the natural gas exports. These developments are expected to favorably influence the FID decisions of several nearshore LNG projects currently under consideration. According to the Rystad Energy, global FLNG supply capacity is projected to expand to 42 MTPA by 2030 and 55 MTPA by 2035, representing an increase of 3x to 4x the current level. There is even a cautious optimism that the future FLNG newbuild demand should outpace global fabrication capacity. However, reciprocal tariff measures by the U.S., along with ongoing geopolitical tensions in the Middle East and between Russia and Ukraine, could pose potential risks to global supply chains and project financing. The drilling market is currently showing a temporary slowdown, but a gradual recovery is expected over the mid to long term. According to the Clarkson Research, as of September '25, the utilization rate of deepwater floating drill rigs stands at around 78% and is projected to reach nearly 90% by the end of '26, driven by replacement of aging assets and expansion of deepwater developments. In particular, demand for deepwater floating drilling gigs is increasing in regions such as West Africa and the North Sea. The upcoming merger between Saudi Arabia's ADES and UAE's Shelf Drilling, which together will own 77 of the world's 509 jack-up rigs, is expected to create a major global drilling player, raising expectations for greater market balance and acceleration of rig replacement demand. The offshore wind market has recently experienced a slowdown due to policy shift in major countries and deteriorating project economics. However, amid the global drive for energy diversification and decarbonization, it remains a market with a strong long-term growth potential. In Korea, the government plans to hold fixed price options totaling 5 gigawatts between '24 and '26. In the first half of '25, 689 megawatts has already been confirmed and an additional 1 gigawatt or more of offshore wind capacity is scheduled for auction in the second half of the year. These developments, coupled with the new administration's strengthened renewable energy and decarbonization policies, are expected to positively contribute to the growth of the domestic offshore wind market. The WTIV market is expected to remain steady around existing developed fields, but the global market may experience a temporary slowdown due to the review of the multiple new projects and the rising uncertainties in markets such as the U.S. Nevertheless, demand for vessel capable of installing large 15-megawatt class turbines continues to expand. In particular, in Korea's Western and Southern coastal regions, demand for WTIVs suitable for the large turbine installation is expected to accelerate between '28 and '32. Alongside expansion of the domestic offshore wind market, demand for offshore sustainable, rather offshore substation installation is also expected to rise. In Europe, demand is similarly growing, particularly for the large-scale HVDC platform. Overall, even amid the global energy transition, both the stable supply of traditional oil and gas resources and the growth of the renewable energy market centered on offshore wind are progressing in parallel. In this environment, the company is actively pursuing new orders centered on its core areas of competitiveness, including FPSO, FLNG, onshore LNG models and WTIV. The offshore BU of Hanwha Ocean will continue to respond flexibly to changes across the conventional, unconventional and renewable energy markets while leading the industry and driving sustainable and long-term profitability. This concludes the briefing on the business performance for the third quarter of '25. Now we will take questions from the participants.

The first question is from Shinhan Investment Securities.

I have questions about the offshore business. With regard to the FPSO incidents, outside of the onetime expenses that you have shared, was there any impact on the production schedule? And if you can calculate that into the amount, how much will that be? And can I know more details of the change order that will come about in the fourth quarter? And on the sales basis, how much the order backlog for the offshore business are remaining?

The answer is in September, there was an incidence with FPSO [indiscernible], the associated amount that was reflected in the third quarter is about KRW 25 billion. Of course, there could be other expenses associated such as the premium and the change order, but those are not yet finalized, and we'll have to wait and see until we know of the full scale of the financial impact. In terms of the order backlog for the offshore, most of the orders have been delivered, and there are some constructions currently underway for the FPSO. And in terms of the delivery basis on the third quarter, I believe that there are about USD 2.3 billion worth of order backlogs are still remaining.

The next question is from Yuanta Securities.

According to my estimation or the forecast from the fourth quarter of this year and until the first half of next year, it seems that the sales revenue portion of the revenue coming from the container ships will decline significantly. Meanwhile, the revenue share of the oil tanker will increase quite significantly. I just wanted to verify if my prediction is indeed correct. If that is the case, the containers margin are relatively high. And in terms of the ship overall vessel cost, the margin will improve. But in terms of the product mix, it might have potentially negative impact on the operating income. So will that be any negative offset effect that I can expect from this changing dynamics?

The answer is the containers -- the share of the container will not decline, it will actually increase from the second half of '26 and onwards to '27. And you are correct in predicting that the container share will increase. And we have been relatively increasing the LNG mix. And we expect that LNGC production share will decline from the second half of 2026. And in terms of the margin for the container ships that we no longer [indiscernible] order based upon the low price, so the sales price is on the market average or even exceeding that. So it would not have any negative impact on the operating income.

The next question is from DAOL Investment & Securities.

I have a rather simple question. Out of the revenue recognized for the second quarter for the commercial vessel business unit, what are the ratio of the sales from the orders that you received for -- received in the year '22?

The answer is: For our commercial vessel revenue recognized for the second quarter, the order volume from '22 accounts for 79%; and for the third quarter, the order from the '22 accounts for 61%.

The next question is from iM Securities.

I have a general question about the governance structure. So there are some significant equity portions owned by the Korean Development Bank. And if and when it is transferred to the overseas or international investors, will there be any limit that is imposed on such foreign ownership based upon the Commercial Act or the Capital Markets Act or the Defense Acquisition Programs Act?

So if you are asking about any limits for the foreign ownership of the company's equity, there is no particular limit or the ceiling to the share.

The next question is from Korea Investment & Securities.

I have questions about the revenue from the commercial vessels for the Q3. For Q2, the commercial vessels BU have recorded KRW 2.81 trillion in revenue. In Q3, it has declined by 12%. Considering the reduction in the number of operating days during the third quarter, it seems that the degree of decline seems too severe or significant. So I'd like to ask if there is any other reasons that can explain such a huge differential of 12%?

The answer is: The majority of the differences comes from the reduction in the number of operating days in June, July and August. And also during the third quarter, there was a replacement of the outdated facility as a part of the initiative to strengthen the safety and the security management. So because of this replacement of the outdated facility, FT6 and FT5 the production has been suspended for 1 or 2 weeks and that has contributed to the decline in the revenue.

The next question is from the Yuanta Securities.

And this is a follow-up from the previous question. So according to my forecast is that the share from the container ships out of the total revenue will decline in the upcoming 2 to 3 quarters because after the delivery of this year, the next round of delivery will resume in earnest from the second half of 2027. But you answered that the share of the containership will increase out of the total revenue. So I'd like to understand exactly when the increase will begin, when from this year or next year, from which quarter?

The answer is: You are right in pointing out that in the third and fourth quarters of this year, there is a slight decline in the sales from the container ships, and it will rebound from the second quarter of 2026. So versus the first 2 quarters of this year, the revenue from the container ships has declined in the third and fourth quarter and starting from the second quarter of next year, it will rebound.

The next question is from DAOL Investment & Securities.

And I have high expectations for the Canadian submarine project as well as Orca. I understand that you are teaming up with Hyundai Heavy Industries and participating in the bidding as a one team Korea. And what will be the division of the production be like? And one additional question is that in case of Hanwha Aerospace, it is generating enormous profits and earnings and I'd like to understand the profitability of the overseas submarine projects versus the existing project or commercial vessels profitability.

The answer is: Earlier this year, the Hyundai Heavy Industries and Hanwha Oceans have decided to share our roles and responsibility when it comes to the overseas project for the submarines and the surface vessels under the coordination of the Defense Acquisition Programs Administration. So we are working as this one team initiative, and there will be the division of the production according to the agreed-upon principles, but we have yet to decide as to how the sharing of the roles of responsibility will be for this project. And as for the profitability, we are still preparing to enter the bid and the RFP is not even out yet. So we do not know what the SP will be like -- the sales price will be like, but we can forecast that it will be unlike the domestic supply of the defense goods because we are bound by the defense products, the cost system. So there are a set ratio -- profit ratio or the margin ratio that we can apply to the investment that we made. But in case of the foreign exports, so we do not need to actually include our cost and other price factors, and we can actually hope for the better profitability profile.

The next question is from NH Investment & Securities.

I have a question about the price of the new LNGC vessels. According to the Clarkson report, then the price of the new LNGC vessels declined slightly, but it seems that the inquiries are increasing these days and the force majeure situation in Mozambique has finally been resolved. So do you believe that the LNGC price, the vessel price will increase, will go up next year?

The answer is that according to the Clarkson, the LNGCs, the new vessel price has declined slightly, and that is in line with what we observed in the actual market situation. And in terms of the inquiry, the volume of inquiry that we are receiving, that there was a definite decline in the first half. But in the second half, we are definitely seeing the rebound when it comes to the charter or the new build. The inquiry is on the rise. According to our conversation with our customers and the competing shipbuilding houses, the situation in the Mozambique is finally being resolved, and there are some conversation of potential volumes that will be deliverable on the year 2029. So there is a likelihood that the vessels might be needed to be delivered in '29. So based upon this information, if I may do the difficult job of predicting the vessel price for the year '26 for the LNGC. So when we think of the price before the slight decline in the first half, so that is the rebounding price or the strong price points was created because of this large volume of orders that was placed by Qatar and almost all the docks in the shipbuilding companies were full and the price was actually formed out of the long period of depression, so it is unlikely that the price, even though it might rebound will go back to the point where before the decline. So the price will remain quite steady, strong, but not to the old levels after the Qatari orders.

The next question is from Samsung Investment Securities.

I'd like to understand if there is any possibility of any additional one-off expenses? Because there was an unfortunate incident at the yard, will there be any impact from that? And according to the trend of the competition, they have entered into the collective bargaining and the possibility of the year-end performance bonus has been mentioned. So do you expect any onetime expense items might appear for the fourth quarter?

The answer is: Well, as of now, it is kind of difficult to predict what's to happen in the fourth quarter with regard to the onetime expenses. We can forecast or foresee that because of the improved performance of this year versus the previous year, because we finally turned around, then there is a possibility of performance bonus. But other than that, it is difficult to predict what other onetime expenses might occur during those quarter.

The next question is from Korea Investment Securities.

And the question is to do with the offshore business unit. According to your plan, then you have a plan to actually acquire floating dock and the 6,500 tonne worth of floating cranes in the year sometime in 2027. But this new FPS order is likely to be delayed in the following year. So will that also delay the proposed investment into the floating docks and the floating cranes or will it go without any change in the schedule?

The answer is: Our target order intake, there would not be the massive delay in schedule. So we will go ahead with implementing all the required facilities and the machineries in line with the timing of the launching of the floating dock in '27.

Next question is from Yuanta Securities.

I'd like to ask for any updates on the acquisition of Austal. During the weekend, one of your competition have declared that it has started the consultation with the overseas shipbuild -- shipyards on the NGLS. And I believe that Austal has an experience in participating in this bidding even before the concept design phase. So I know that Austal, the acquisition is still ongoing. So are you planning to continue on the order intake regardless of the change in the largest shareholder?

The answer is: There is no particular update than what we have shared in the previous quarter about the acquisition of Austal. So we are still waiting for the authorities' approval on the acquisition of 19.8% equity of this company. We will not be the largest shareholders, but the second largest shareholders. And I believe that it is rather too early to discuss about any possible business opportunities. So we will share with you any updates on the acquisition along with the potential business opportunities after the acquisition is completed.

The next question is from the CLSA.

I have a question about the fee structures or the charging structure for the battleships. In case of the domestic contract, I believe that it is mostly cost plus. In case of the overseas contract or the export, it is mostly the fixed price. So the question is that this time around, you are bidding for the Polish and Canada and the U.S. deals and I just wanted to verify all of those deals are fixed price basis.

The answer is: Even for the domestic contracts, there are some cases, we have the cost plus, but also fixed price. So in case of the new development, then it is mostly cost plus and the principle of the defense cost systems is applied. And in terms of the overseas exports, the basis is the fixed price. But depending on the external factor, sometimes that we use cost plus. And as for the Poland, Canada and the U.S. deals that we are yet to finalize the deal structures, and we will do so. We will share that with you when we have the final structure.

The next question is from DAOL Investment & Securities.

I still have a question about the vessel price for the LNG carrier. You said in your earlier response that the price for the LNG for the year '26 will remain quite steady. But in case of the Equinor deal, it was even lower than the Clarkson's $249 million. And it could be viewed as a one-off incidence because it is something like the final sale. But depending as we expect the increased volume in the 2029, there is a potential for the vessel price to go up. And if -- so there are 3 major players in the Korean market, Samsung, Hyundai and Hanwha. And if 1 of these 3 parties actually break up from this league or the bond to maintain the price, then it will have a negative impact on the overall LNG vessel price. So that is why I'm asking you again to confirm your earlier answer that you don't see that the LNG price will go up next year. And one follow-up question is that the next decade, the Rio Grande LNG terminal, so do you expect that you will construct this facility all by yourself or how the deal structure will be like?

The answer to this question is that it will be a bit premature or might be losing sight of the big picture if you focus on the single deal of the Equinor to interpret the condition of the total market. So if you ask me if the price for the Equinor is too low, too high, then you need to take into consideration many different factors such as the specifications and the total volumes and so forth. So it will be a haste answer if we try to generalize this market condition based upon a single contract. And as for the LNG vessel price for the year '26. The Mozambique is starting to move. And if it goes well and all the slots for the competing shipyards are full, then there could be the potential upside to the LNG vessel price. But if there is any further delay in Mozambique and there are still valuable slots from the competing shipyards then it is not likely the price will go further up. Of course, we will prepare for the best case scenario. But in terms of the risk management and risk mitigation, the base scenario or the default scenario is that the LNG vessel price remains steady. And this is the scenario that we are building our risk management strategies and plans upon.

The next question is from iM Securities.

So versus the LNG, the order volume for the container is increasing. But when it comes to the profitability, that of the container is lower than that of other LNGC and that is why your local competitions, such as Hyundai and Samsung are trying to secure profitability by building the vessels outside. So I would like to ask you, is there any possibility of utilizing the overseas yards for the further productivity because this is something that you do already for other tankers?

The answer is: The oil tankers that we received the order for the VLCC. And for our domestic competition, the overseas production is for the smaller-sized tankers, the Suez level or even smaller. And even for the VLCC, the overseas construction is extremely difficult. And each shipyard has their own unique yard and docker characteristics and our yard dock are more favorable for the large-sized vessel. So I believe that we have the competitive advantage when it comes to VLCC. Considering the interoperability and the possibility of the continued constructions based upon the standardized specifications, I believe that when it comes to VLCC, we have the higher profitability than other shipyards.

The next question is from Samsung Investment Securities.

I have a question about the LNG order backlog. So for the volumes that are to be delivered in 2028, it seems that there are some slots left. So I'd like to understand your order strategy for next year as to how you plan to fill up the remaining slots for '28? So for example, do you plan to actually lower the price of the LNG to secure the slot or do you plan to actually construct other vessel types? For example, the containers, we discussed earlier that the demand is a bit sluggish. So what could be the alternative vessel types for the valuable slots for 2028?

The answer is that I do not fully understand the logic that you have utilized to calculate the capacity for the LNG. So my answer might not be completely in line with your question. But with that said, that we do not necessarily have any difficulties in filling up the slots for the LNG. But if you ask me if we are at the full capacity for the LNG construction? That is not the case. So if you were to fill up the slot completely, if you were to lower the price or we will go for the alternative vessel types, well, the decision will be based upon the situation that lies in front of us. And as was mentioned by one of the analysts who asked questions earlier, so we will not go ahead and lower the price of the vessels too much because that will have the negative or detrimental impact on the industry overall. So the easiest way is to convert from the LNG to the VLCC. So we will keep a keen eye on the market condition, and we will compare the workload, and we will make sure that there is the optimal product mix, and this will be our strategy going forward.

The next question is from Shinhan Investment & Securities.

Can I have an update on the situation in the Philly shipyards? Any updates in the production capacity and the productivity?

The answer is based upon the order backlog, it has about USD 3 billion worth of order backlog and the target is to turn things around in the year 2026. So there are measures underway to improve the productivity, but because of the recent sanction imposed upon the Philly shipyards, there are some variability, and we are looking into some countermeasures. Cumulatively, until the third quarter of this year, the Philly Shipyard has recorded the revenue of USD 120 million, but the operating loss of USD 27.7 million. Like I said earlier, we will make every effort to turn it around with the next year.

The next question is from NH Investment & Securities.

I'd like to understand of the order and intake possibilities for the battleship. We have discussed about the Poland and in Canada project, but it is of a large scale, and it might take some time before the final decision comes out, and there are still some variabilities. So I'd like to understand, is there any possibility of a smaller scale project, the surface vessel or the submarines? Do you have any inquiries that we might expect to see the outcome sometime by the end of this year or the early next year, the first half?

The answer is for the Canada project, I have shared with you the answer to as for the Polish project, we will soon submit the proposal, and we are hopeful that we can get the result by the end of this year. And as for the Thailand surface vessels, so we will know the result of it by the first half of next year, but we will have a better idea within this year. And for the submarines for Greece, Colombia and Chile and the Philippines and the Middle East, discussions are currently underway. And in terms of the timing, the closest or the quickest outcome can be expected from the Thailand and Poland. Well, the things are speeding up in the Middle East, but for other regions, the timing is still flexible.

Thank you very much for participating in the Q&A, and that is it for the third quarter performance call for Hanwha Ocean. [Statements in English on this transcript were spoken by an interpreter present on the live call.]