Australian $1.9bn shipbuilder Austal surged after emerging from a trading halt on Tuesday following two major announcements:
- Hanwha Defence USA lodged a non-binding US$1.05–1.20bn bid for Austal’s US business, with the company granting four weeks of due diligence.
- At the same time, Austal warned its US operations are expected to post a ~A$175m EBIT loss in FY26 due to legacy Pentagon contracts, resulting in a forecast group EBIT loss of ~A$113m.
The market has looked through the earnings downgrade and instead focused on the strategic value of the US business – good timing; otherwise, ASB would probably have been trading below $3. Hanwha’s approach provides a clear valuation benchmark for an asset whose near-term earnings are heavily distorted, while also offering a pathway to remove the source of Austal’s recent earnings volatility. This follows Hanwha’s unsuccessful 2024 takeover approach for the entire company and subsequent increase in its stake after receiving Australian regulatory approval.
- Hanwha bid $2.825 in 2024, a great call by the board to reject the bid with the stock testing $9 less than 2 years later.
Austal CEO Paddy Gregg has become increasingly positive on Hanwha’s A$1.7bn proposal for the company’s US operations, saying he sees a “clear path” to securing approval from the Trump administration, an important shift from two years ago, when Austal rejected Hanwha’s ~A$1bn bid for the entire company partly because of concerns that Australian and US defence regulators would block the transaction.
Hanwha has remained persistent, building a significant 9.88% stake in Austal and returning with a bid specifically for the US business, which generates more than two-thirds of group revenue and includes its strategically important Alabama shipyard supplying the Pentagon. A successful deal would leave Austal a materially smaller company, but one that can focus on its knitting at home.
Make no mistake, 2026 has been an annus horribilis for ASB, with its underperformance largely driven by problems within its US business, which severely dented investor confidence. The biggest blow came in February when an accounting error involving double-counted incentives on US Navy contracts forced FY26 EBIT guidance to be cut from A$135m to A$110m, sending the shares crashing more than 20% in a single session. The situation deteriorated further in August, with Austal reporting a ~A$113m group EBIT loss, driven by a substantial ~A$175m loss at Austal USA after reassessing recoverability on several legacy contracts.
Ironically, the troubled US division is now the subject of Hanwha’s A$1.7bn proposal, potentially providing Austal with an opportunity to crystallise the strategic value of the business while removing the very asset responsible for much of its recent earnings volatility – albeit from much lower levels. We see two motivated players here:
- ASB knows the stock would be under renewed pressure after the disappointing result from its US operations.
- Hanwha get to buy the asset they wanted in 2024 on the “cheap” – ASB is trading on 19.2x today after hitting 40x in 2025 when the defence sector was “on fire.”
We like the recent approach with Hanwha chasing Austal’s US assets, leaving us bullish on ASB, targeting a move back above $5.00. – Shawn’s Trade Ideas remains long the stock.
MM remains bullish ASB ~$4.40
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