Hyundai Heavy Industries Co Ltd

KRX:329180

Q2-2025 Earnings Call

[Unknown Executive]

[Audio Gap]

Under the HD Group, we have our IR team, and we are taking our first step to closely engage with our international investors. Starting this quarter, we're offering English simultaneous interpretation for the earnings presentation. We appreciate your patience in case of any inconveniences. Let us begin.

So we will begin with the earnings highlights, then we will walk you through the results. First, currency impact. In Q2, the average Korean won USD exchange rate was KRW 1,404, down KRW 49 quarter-over-quarter following a KRW 54 increase in Q1.

So again, Q1, we had an increase of KRW 54. As a result, we recorded on a consolidated basis, total FX-related losses of KRW 46 billion. By company, Hyundai Heavy Industries, KRW 29.3 billion; Samho, KRW 2.5 billion; Mipo, KRW 14.3 billion in losses.

And here, it's not a major issue, but the impact of steel prices on margin was minimal in terms of number. So for this season's performance, the impact of steel prices was again minimal.

Second, incentive bonus. Additional incentive bonuses for the first half were reflected in a lump sum during Q2. So that was because of our stellar performance. So further adjustments are expected to be made on a quarterly basis in the second half. We kindly ask for your understanding that we are not able to disclose specific figures.

And third, one-off gain. Hyundai Heavy Industries Offshore division reflected KRW 7 billion worth of change order related to the Shenandoah project. And in addition, this is -- I'm sure you would have -- you'd be very curious about this.

This is the breakdown of Q2 top line by order year for each shipbuilding subsidiary. For Hyundai Heavy Industries, 65% in 2022 and then 31% in 2023 and then 2% in 2024. Mipo, 12% in 2022, 56% in 2023, 32% in 2024. Lastly, Samho, 42% in 2022, 55% in 2023 and then 3% in 2024.

I will move on to Page 4 and elaborate more on KSOE's Q2 2025 earnings. So in Q2, on a consolidated basis, sales increased by 9.7% quarter-over-quarter and then by 12.3% year-over-year. Despite the weaker dollar, revenue increased because of seasonality driven by 4 additional working days and sustained improvements in productivity, as we mentioned before. So overall, our sales increased.

OP increased by 11% quarter-over-quarter and by 15.3% year-over-year, the continuous increasing. Our group delivered stable and solid margin growth across all divisions despite unfavorable FX conditions. As for nonoperating items, I'd like to address them shortly.

Now Page 5. You would see earnings by business division on a consolidated basis. Please refer to the table below and let's turn to Page 6.

You'll see sales by key division. First, on the Shipbuilding segment. Seasonal factors led to an increase in the number of working days, while improved productivity and higher vessel prices contributed to stronger results. So both productivity gains and then vessel price increases. And yet FX weaknesses slowed overall revenue growth.

And then next, offshore plant. In addition to more working days, revenue has been growing as the Trion FPU project reached a 27.7% progress rate. And the [ Ruya ] project reached a 4.2% progress rate with construction set to ramp up in July, right this month. So some sales have been recognized.

The Engine division also showed a gradual increase in delivery volumes and a better product mix. So our 2-stroke engine production rose 16.4% quarter-over-quarter. So again, 16.4% increase. And with HiMSEN engine output, that's up by 11.7% based on units, the number of units.

Page 7. Here, you can see the breakdown of OP by division. In the Shipbuilding division, despite the weaker dollar, the Shipbuilding division maintained solid margins supported by revenue growth, improved product mix and productivity. So continuing with Q1, we had solid growth in Q2. As I mentioned before -- my apologies.

And then Offshore. Offshore earnings improved significantly, driven by higher revenue from profitable projects with onetime change order of KRW 7 billion and cost savings supporting results as well and material cost has gone down as well.

So we have significant improvement in profitability more than we expected. The turnaround came quicker than we expected. And coming into the second half, we expect solid growth.

Now the Engine division. The Engine division also delivered strong earnings growth. As I mentioned, the revenue grew and we had improvement in product mix. So as a result, profitability improved significantly. The utilization rate is high and productivity is improving continuously, which is quite unusual.

It's not in the slide, but the naval vessel division. I'd like to briefly mention naval vessel division. This division reported revenue of KRW 226.8 billion, which has increased by 34.9% quarter-over-quarter. This growth was driven by an increase in working days and more volumes of warship.

OP for Q2 recorded KRW 26.9 billion, increased by 5.1% quarter-over-quarter. Please be aware that the naval vessel division's margin trajectory will show ups and downs on a quarterly basis, depending on the payment terms of each project.

And then please refer to the earnings result of each consolidated subsidiary on Page 8. And then I will elaborate on the next page, Page 9, please.

So first of all, let's take a look at KSOE. KSOE's stand-alone operating profit turned negative due to the absence of dividend income from its subsidiaries. So overall, we have a negative performance and Hyundai Heavy Industries sustained solid margins despite a weaker dollar driven by the recognition of higher-priced vessels and revenue and improved productivity.

And excluding the negative currency impact, the Shipbuilding division demonstrated margin improvement in this quarter. And also when considered -- when bonus payments are considered, we have a stellar performance and profitability improvement.

Beyond the Shipbuilding division, we observed significant top line and margin growth in the Engine and Offshore plant divisions. So for Hyundai Heavy Industries, the performance overall was solid.

Next, Samho. Samho's operating profit improved compared to the previous quarter, driven not only by an increase in working days and prices, but also by the turnaround of Industrial Machinery division. And despite an unfavorable FX and the increased tanker sales, the Shipbuilding division overall delivered stronger-than-expected margin.

Moving on to Page 10. This shows Mipo's earning improvement, which is growing larger. Along with increased working days and higher ship prices, the overall productivity gains and product mix optimization are rapidly making progress.

The recovery was slower than other subsidiaries, but still the recovery is recently picking up significantly. So that was about Mipo.

And then Hyundai Marine Engine. Its earnings improved significantly as well, amazing in a word. Other than the product mix gain and price increase, productivity has improved and cost-saving efforts are starting to pay off.

So excluding the KRW 2 billion of one-off gains from sales of long-term engine inventories, Hyundai Marine Engine recorded an operating margin of 15.5%, especially the sales of long-term engine inventories. I'd like to emphasize this part. And even excluding this performance, the OP margin is 15.5%, could be the highest ever in its history.

Now let's move on to Hyundai Energy Solutions. Hyundai Energy Solutions also delivered significant and amazing earnings improvement, but the stock price rather declined. In the second half, we're confident that it's going to go strong, but still prices are down, stock prices are down.

The company demonstrated strong sales performance both in domestic and global markets, successfully launching its new anti-module products.

And also the sales recognition of Angola Phase 2 project resulted in strong sales and margin in this quarter. Export volume to the U.S. market also increased significantly compared to the previous quarter. The second half, we believe its performance will stay solid.

Now Page 11, in terms of nonoperating profit, quite simple. There were significant losses related to FX valuation due to the weaker dollar. In detail, there were FX losses of KRW 589.3 billion, derivative losses of KRW 2.2 trillion and KRW 1 trillion in valuation losses from farm contracts. Mostly, these losses come from hedging activities as well as valuations. So in actuality, it doesn't have a big impact on our cash flow.

Lastly, financial ratio on Page 12. So as you can see, all shipbuilding subsidiaries are in a net cash position with a combined total of approximately KRW 6.9 trillion in net cash, which reflects their outstanding financial health.

So that was about our presentation. But before closing, I would like to update you on the recent fire that occurred some of 3 days ago. The fire was fully extinguished on the morning of the 29th and we are currently assessing the cause and extent of the damage.

And the restoration preparations are underway in coordination with KEPCO and local authorities. And fortunately and it's quite fortunate that the accident took place during our summer holiday period, so there were no casualties. And losses are expected to be minimized through our insurance coverage.

And with KEPCO's emergency support and backup generators in place, both the main building and IT systems remain fully operational. And we are doing our utmost to restore operations as quickly as possible and we will keep you informed of any updates through disclosure or IR events.

So that concludes my presentation of the Q2 2025 results. Thank you for your attention, and there would be a further presentation about our operations and marketing. Thank you.

[Jay Kang, executive]

Hello. Good afternoon. I am Jay [ Ho ] Kang, Executive Vice President of Strategy and Marketing at HD KSOE. And I'd like to present the performance review for the Shipbuilding division and then I'd like to share with you our outlook for the business.

First of all, global new orders for commercial vessels in Q2 totaled 37.02 million GT, 647 units, down more than 50% from 77.23 million GT translated into 1,788 units in the same period of 2024, marking the lowest level in 5 years. This decline was driven by a combination of rising uncertainties related to U.S. trade policy, USTR regulations and ongoing geopolitical and economic instability. So a combination of factors slowing down new orders.

However, despite the overall slowdown in global new orders, HD Hyundai Group secured a combined $10.58 billion, 29 units in new orders during the first half of this year. By company, Hyundai Heavy Industries, $5.45 billion; Samho, $3.06 billion; Mipo $1.85 billion; and HHIP in the Philippines, $219 million.

So at least 79 units and this represents 70% of our full year target of $15.02 billion, putting us well on track to achieve our annual target. Despite the global slowdown, we have continued to secure contracts steadily and our order book remains at a stable level.

So again, our book log and backlog and order book is in a very stable condition. If you look at our orders by vessel type in the first half of this year, for Hyundai Heavy Industries, 20 container ships, 1 VLGC, 2 VLECs, 2 VLCCs, 2 tankers, 2 VLCCs. So in total, 29 vessels.

Now Samho, 5 LNGCs, 8 container ships, 6 tankers, so 19 vessels in total. Mipo, 6 LNG bunkering vessels, 1 PC, 5 MGCs and then 16 feeders, so 28 vessels in total. In the Philippines, HHIP, 3 PCs that's 115,000 grade.

For your information, as you can see, in the first half of this year, we secured solid volume of new orders despite the sluggish market conditions, as you can tell from our new order status. I think it's because of our agile response to the evolving landscape.

As of June 2025, the Cluster newbuilding price index stands at 187.11. While this marks a slight decline from the recent peak of 189.96 recorded in September last year, prices remain at historically high levels. It's been a seller's market as shipyards have secured full backlogs and it will be back up. It will be backing up a high level of newbuilding prices for the time being.

And next, I'd like to briefly cover market conditions by vessel type. LNG first. In the first half of this year, only 8 large-sized LNG carriers were ordered globally. This is mainly due to increased delivery volumes in the short-term following a surge in LNG carrier orders over the past few years, which has led to short-term delivery saturation. And also the freight rate itself has weakened. That's part of the reason.

However, in the longer term, global LNG trade is expected to grow steadily, backed by the ongoing development of large-scale LNG projects. And also in the process of trade tariff negotiations, LNG is expected to gain further boost. So backed by the ongoing development of large-scale LNG projects, we believe global LNG trade is expected to grow.

Now container market, unlike other vessels, the container market has remained robust this year, maybe the only vessel type which is seeing such a growth, which allows us to secure strong orders. A key driver behind this is the ongoing fuel transition in the shipping industry with major liners actively pursuing fleet replacement. So they are pursuing this green transition.

This trend has been accelerated by the evolving global regulatory environment, including the enforcement of the fuel EU maritime and the tightening of EU and IMO regulations. Leveraging our technological capabilities and alternative fuels and extensive track record, we are well positioned to secure demand arising from the green transition.

Aside from container ships, global new orders for other vessel types such as tankers and LPGCs have declined compared to last year. Nevertheless, demand for newbuilding remains firm, driven by aging fleet replacement and stricter carbon regulations.

In response, we will continue to closely monitor markets and remain committed to securing orders strategically, for example, efficient operation of docks.

In conclusion, we believe the solid market demand will continue for our target segments supported by tightening environmental regulations and the ongoing need to replace aging fleets. While short-term volatility may persist due to various factors such as U.S. tariff policy, containment of China and geopolitical issues, we will closely monitor market developments throughout the second half of 2025 so that we can secure volumes based on profitability.

So that was about the second half -- that was about our Q2 results.

[Unknown Executive]

Now Offshore Energy. Good afternoon. I am [indiscernible], Executive Vice President in Offshore Energy Business Division. I'd like to briefly walk you through the Q2 performance and market outlook for our division.

For our offshore oil and gas business, we are actively engaged in FEED and EPC bidding processes in Qatar, the UAE, Australia, Americas and other regions. And currently, we are expecting to confirm the results of projects in the UAE and Qatar within the fourth quarter of this year, 2025.

In the renewable energy sector, especially for offshore wind, we participated in the offshore substation FEED process for domestic offshore wind projects in February and July this year. Building on this, we are putting efforts to receive EPC construction projects within this year, 2025.

In addition, we are working with multiple partners to initiate offshore wind projects in Donghae, East Coast of Korea and Scotland and then Taiwan. Throughout this process, we will utilize our in-house offshore floater model. The discussions are ongoing with our multiple potential business partners.

And also, we are in the process of developing our in-house offshore substation model to strengthen our position in undertaking offshore plant projects. And that's going to give us more opportunities to participate in FEED process for offshore wind.

And as I mentioned before -- as mentioned before, we are currently participating in TerraPower's SMR demonstration project in Wyoming, the U.S. Since March, we have also been conducting joint research for SMR commercialization as we closely work with TerraPower.

And next, let me briefly walk you through the market outlook for offshore oil and gas and renewable energy. With oil prices stabilizing above EEP levels, market conditions in the offshore ONG sector remain solid, though not overly bullish.

Throughout the world, energy security remains a key concern as demand for crude oil and natural gas for power generation continues to rise.

Traditional oil majors are focusing investments in regions such as Guyana, Brazil and Africa, where production efficiency is high. So these are strategic regions. And meanwhile, IOCs and NOCs in the Middle East, Australia and North and Central America have gradually increased their CapEx investments for their offshore oil and gas fields.

Notably, several mega offshore project awards are expected in Qatar, the UAE, Saudi Arabia and Australia through next year, so this should next year gradually. And this trend is likely to continue for the time being.

Renewable energy is somewhat lagging behind the offshore oil and gas market, but we expect gradual growth in investments and demand from the mid- to long-term perspective. In particular, expectations for market growth have been rising in Korea, driven by the institutional foundation reinforced through the enactment of the Offshore Wind Power Promotion Act in Q1, along with the new administration supportive policies for offshore wind.

Based on these market conditions, we are pursuing a balanced approach among oil and gas, renewable energy and SMR. At the same time, we are focusing on selected high potential projects where we can demonstrate our technical expertise and capabilities with solid profits.

So that wraps up my presentation for Q2. Thank you for your kind attention.

[Operator]

[Operator Instructions] The first question will be provided by DongHeon Lee from Shinhan Investment and Securities.

[DongHeon Lee, analyst]

So my question is primarily about the product mix of your Shipbuilding division. I'd like to know Hyundai Heavy Industries LNG capacity specifically.

[Unknown Executive]

So let's start with Hyundai Heavy Industries first. For the second quarter, at Hyundai Heavy Industries, the proportion of gas vessels is slightly over 70%, then followed by 25% container ships and 2% tankers.

Moving on to Samho, when LPG and LNG and ammonia are all combined, its gas proportion is around 46%, followed by 38.6% of container ships and 10.1% tankers. Mipo, Mipo has only LPG vessels and that accounts for 22% and PG, 67.3% and the others. And as for Qatar capacity, that's around 25%, which is half of our LNG capacity.

[Operator]

The following question will be presented by Yongmin Kim from Yuanta Securities.

[Yongmin Kim, analyst]

My question is about FX valuation losses. So these FX losses are specifically lower for Samho, it's around KRW 2.5 billion. And I'd like to know what the reason is. Maybe I don't think it's because of -- primarily because of derivative valuation.

Maybe Samho's orders primarily came from 2023 when FX exposure was not that high. Or are there any reasons why the FX valuation losses are specifically lower for Samho?

[Unknown Executive]

There are complicated reasons. So in addition to hedging, we need to think of matching when we procure our raw materials. So in that sense, I think Samho was in a more favorable position in procuring its raw materials as to Q2.

But these factors will not continue and there will be ups and downs as we go along. And as for Mipo, its FX valuation losses are bigger compared to its sales and means it was exposed to more very volatility in its raw material procurement.

[Operator]

The following question will be presented by Kwang-Sik Choi from DAOL Investment & Securities.

[Kwang-Sik Choi, analyst]

So my question is, currently, your company is engaging global operations, especially with Edison Chouest Offshore, ECO and Huntington Ingalls Shipbuilding as well and across India, Morocco and the Philippines as well. So my first question is, who is the main agent in conducting such business? Is it Hyundai Heavy Industries or KSOE? That's my first question.

And second question is these overseas operations involve technology cooperation and technology support as well. Then does it mean it can be translated into sales and revenue-generating opportunities, especially with your relationship with ECO and Huntington Ingalls Shipbuilding Industries?

[Unknown Executive]

So to answer your first question, currently, in the Philippines and in our upcoming Indian projects, it is the KSOE who is at the center of making these investments. But with the passage of time, in addition to KSOE, Hyundai Heavy Industries will be also involved and a portion of Mipo's business operations will be involved as well.

In the Philippines, it is true that KSOE is making the initial steps. But in terms of design and production, Mipo and Hyundai Heavy Industries are also partially involved.

So with the passage of time and as we enlarge our overseas presence and in the initial phase, there won't be sales that will be generated. But I think with the passage of time, we would be generating performance and revenue as well in our overseas operations.

As to the Philippine business, in September, we will be starting with the steel cutting. And then it means that that will be recognized as our sales and revenue.

And currently, we have [ Binaseng ] in Vietnam. And if we operate our shipbuilding operations in the Philippines and India, the format would follow pretty much the one that we have in Vietnam with Binaseng.

[Jay Kang, executive]

And this is Kang Jay Ho, and let me make some further comments. So of course, KSOE is at the forefront of making investments currently, but we would like to ensure that we have our global partners and we meet the needs of our global partners.

So all in all, we would like to take a flexible approach. And it all depends on the type of vessels and the size of vessels that our partner shipyards have in their minds. We have specialized business operations under our group.

For example, if Edison Chouest Offshore wants to build small and medium-sized container ships, then Mipo will be the right partner to do so. And for example, if Kochi, India wants to build larger ships, then Samho or Hyundai Heavy Industries will be the right partner. So overall, we'd like to ensure this flexibility in working with our global partners.

And as to initial phase sales generation, if we have an overseas partners, then we would provide drawings and we would provide equipment facilities and we will send our people professionals to our global partners. And during the process, sales and revenue will be generated.

[Operator]

The following question will be presented by Yong-jin Byun from iM Securities.

[Yong-jin Byun, analyst]

So my question is about the fire that affected Samho. It's fortunate that you have insurance coverage and also it's fortunate that it happened during the summer holiday period.

I'd like to know the coverage of the insurance policy you currently have. Does it cover only property damages? Or does it cover operational losses as well?

[Unknown Executive]

And currently, we have comprehensive property damage insurance. So property losses will be all covered. And as to operational losses and whether that will be covered, we need to confirm.

And currently, the specific recovery date or schedule has not been finalized yet because the summer holiday period is until next week. We're going to make sure that we fully cover all the operations before the summer holiday period ends.

And we will also keep you updated with any developments that will be happening in relation to this fire.

[Operator]

The following question will be presented by Young Soo Han from Samsung Securities.

[Young-Soo Han, analyst]

Two sets of questions. The first set of questions are about your offshore project. It seems like offshore project has quite an impact on your overall performance, whether it's going to be positive or negative.

But it seems like for this year, there is no tangible offshore project that you are winning. So are there any projects that you believe would be really likely to be awarded to your company? And do you believe you can attain your order targets within this year?

And if there is any contract that is visible or concluded, then when can you share with our -- when can you share with us specific and tangible news?

The second set of questions are about your bonus payment. So you mentioned that in Q2, bonus payments for Q1 was also reflected in your Q2. Then is it appropriate to understand and interpret that there will be less quarterly variations in terms of performance payment? Because we have the seasonality, for instance, in Q4, we have this big chunk of costs that are reflected in your accounting book because of bonus payments.

But it seems like you are rather evenly allocating those bonus payments. Is that the right way of interpreting this?

[Unknown Executive]

If I answer your second question, yes, there won't be any cost shock happening in the fourth quarter of this year because we are rather evenly allocating bonus payments.

And if I answer your first set of questions, because of nondisclosure agreement that we signed with our potential customers, I cannot specify names. But we are currently participating in the bidding process of 4 offshore projects, Qatar, Abu Dhabi and Kuwait and their results will be coming starting from October this year and consecutively until early next year.

[Operator]

The following question will be presented by Yeon Sung Jung from NH Investment & Securities.

[Yeon Sung Jung, analyst]

So my question is, as we look at the LNG newbuilding price index, the index itself is declining recently. And is it because shipbuilding companies are offering lower prices? And in addition to that, I'd like to know more about your LNG ship ordering strategy, order intake strategy.

My next question is, when I look at Hyundai Mipo, it seems like its PC order is not that much. So I'd like to know more about, in addition to PC, the container order performance as well.

[Unknown Executive]

If I answer your first question, I think it's because the LNG newbuilding price index is going down, it is because we have this rather mismatching between the slots that are slated for 2028 delivery and the ongoing and the future LNG projects.

So to just to secure their volume for slots in 2028, shipbuilding companies have rather lowered their contract prices. That is because -- that is why the index itself is declining.

But we believe that when the slots are all consumed for delivery for 2028, then beyond 2029 and there will be more LNG projects that are upcoming, including Venture Capital and [ Woodside ], we have multiple LNG projects that we expect to be realized after 2029. And then we have -- again, have this matching and then the contract price, the new shipbuilding price would go up again after 2029.

To answer your second question, it is true that demand for medium-range vessels is rather weakening. But instead, we have this very hot and strong demand in the feeder ship market.

So we have Mipo and Hyundai Vietnam shipyards and they have already secured their volumes stably. So our current strategy is to be more selective in taking in orders.

It means the market itself would become even harder and we can demand higher contract prices. And of course, if Mipo slot falls short, then our Vietnam shipyard can also produce feeder ship vessels as well.

[Operator]

The following question will be presented by DongHeon Lee from Shinhan Investment & Securities.

[DongHeon Lee, analyst]

So my question is you mentioned that there was quite a significant improvement in productivity. Maybe that's partly due to adjustments that are made with your production plan as well.

So compared to the situation in Q1, how does -- how is your Q2 performance differentiated in terms of productivity gains? And can we really distinguish this between bonus payments and productivity gains? And how to understand the whole story? That's my question.

[Unknown Executive]

It's difficult to draw a clear line between the 2. And to help you better understand how much our productivity is improving, I think making comparisons on a yearly basis would be better. So compared to 2024, coming into 2025, we had a 1 day per month productivity gains for each month and that's all translated into our revenue growth.

So -- and that happened in Q1 and that happened in Q2 as well. So you may guess how much productivity gains we have generated through this. So one more working day for every month. So compared to 2024, in 2025, we had a significant improvement in productivity.

As to the production plan adjustments, it's about coordination overall. So it's not that we can micromanage everything. Some things can be happen, but still some things could be delayed as well.

But what is certain is our revenue is increasing quite significantly throughout the production plan adjustment activities. And we expect that as we're coming into the second half of this year, productivity would improve even further.

[Operator]

The following question will be presented by Dong Cheol Shin from CLSA.

[Dong Cheol Shin, analyst]

So my questions are about your special naval ship business. When you want to increase your capacity, then is it possible that use #4 and #5 dock of Hyundai Heavy Industries? And in addition to that, do you have any other options to increase capacity for naval ship operations?

I heard that maybe you could use your Gunsan shipyard, but the dock in Gunsan is too much big. So compared -- when we think of the smaller size of naval ships in terms of maintaining or repairing these naval ships, I don't think the Gunsan shipyard will be the best or appropriate alternative.

And then I also have a question about your special ship operation workforce. I heard that you would be expanding your workforce from 1,800 to 3,000. Then where do you get -- hire all those people? Is it possible to relocate some of your workforce from commercial ship operations into special ship operations?

[Unknown Executive]

So to answer your question, first of all, about capacity, we are considering whether to use #4 and #5 docks, but they are not in need immediately. And if the need rises, we may use those docks. But basically, local assembly -- so overseas assembly is another trend that is observed by many shipbuilding companies.

So we're considering this option as well. It means that we don't need to increase our internal capacity in proportion to our revenue growth because we can consider local assembly. So that's the option that we can consider.

The Gunsan shipyard, as you mentioned, the dock itself is too big. So it's not suitable for naval ships, especially if it is used to build a single or naval ship, then it's not economically feasible. But if we get orders, large-sized orders consecutively, then maybe we can consider whether to use the Gunsan shipyard.

And second of all, about workforce, that relocation amongst our different business operations, the relocation is already happening. So we share our workforce between commercial ships and naval and special ships.

We have a register in place. And based on that, we do that relocation. And as our special naval ship volume increases in the second half, we can get some people from commercial ship operations.

But as you know, the areas where these naval ships are built, it's a high security area. So it's not -- it's legally mandated that we do not use foreign workers. But Philippines is an exception.

If we build a Philippine naval ships for Philippines, then it is allowed that we can use Philippine local workers. That's the only exception. And also that is done based on approval that we get from relevant authorities.

[Operator]

The following question will be presented by Kwang-Sik Choi from DAOL Investment & Securities.

[Kwang-Sik Choi, analyst]

[Foreign Language]

[Unknown Executive]

As to the second question, MRO business in Gunsan is still in its ideation phase. The local government in Gunsan is highly interested in this. But as of now, there is no specific progress that we can share with us -- share with you.

There was quite a big news that just came out this morning, USD 150 billion. The fund itself is really humongous and that's maybe the biggest ever project in this sector, I think, not just in terms of value, but it's going to be a long-term project. And its scope will be indeed far-reaching, not just shipbuilding.

And the Korean negotiation team has not entered into Korea yet. So we don't know details yet. And I'm sure you'll be frustrated. You would really like to know more about this, but please be patient. Your patience would be greatly appreciated.

We will talk with the Korean government and what we can -- but we're sure and we're confident that we will do our best to produce the best possible outcomes out of this. We are open to any possibilities and any potential opportunities and we would have a multifaceted perspective in looking at any opportunities that will be coming up.

And given the size of this funding and fund, this big project cannot be done by any single company or any single industry, I think. As part of the overall shipbuilding community of Korea, we will be at the forefront and we will be proactive in talking with the government so that we can produce the best possible outcomes. This will be the final question.

[Operator]

The following question will be presented by Hans Kwan from Daiwa Securities.

[Hans Kwan, analyst]

So 2 questions overall. The first question is about steel plate. So domestic companies have increased their steel plate prices in the first half already. And they say that they would further increase their prices in the second half as well because these steel-making companies are suffering losses.

Of course, you have your bonded area under operation. And so in that sense, you would be quite immune from such steel plate price increases. But what's going to be your steel plate procurement strategy?

My second question is, earlier this year, we had favorable FX conditions. And my impression is you're quite open in terms of your FX hedging strategy. So what would be your direction in terms of implementing your FX hedging strategy for the remaining period?

[Unknown Executive]

So for your first question as to steel plate prices, we just don't need to look at -- we shouldn't just look at domestic prices because the steel plate prices are internationally aligned.

And we expect that by the -- until the end of this year, the steel plate prices would change almost -- would remain almost unchanged. So we have -- we're going to have this downward and stabilized steel plate prices until the end of this year.

And secondly, our hedging strategy is around -- the hedging threshold is set at around 60%. And on average, it's around 75% as of now and we would maintain our current hedging stance.

Thank you for your participation today. The news that we have today, I'm sure that this is a great boon for all Korean shipbuilders. And see you next quarter. Thank you very much.

[Statements in English on this transcript were spoken by an interpreter present on the live call.]