April 20, 2024

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[THE INVESTOR] Hanwha Aerospace might be weighed down by aircraft engine department costs but earnings from defense sector will improve in the second half, said IBK Investment and Securities on May 31, maintaining a “buy” recommendation while lowering the target price to 40,000 won (US$37.12) from 46,000 won. 

Its revenue in first quarter declined 3.4 percent on-year to 748 billion won and operating loss came in at 33.5 billion won, as costs for joint development project with P&W spiked. Hanwha is financing 2.3 percent of the entire development costs which is burdensome but will reach break-even point by 2025. In the long term, it will gain from the deal, said analyst Lee Sang-hyeon. 

In the latter half, its defense sector will show earnings improvement. Since 2001, exports of K9 self-propelled artillery has been expanding gradually to Turkey, Poland, Finland, India and Norway, now reaching 1.6 trillion won. With higher margins it will significantly boost profits, said the analyst. 

The recent warming up between two Koreas is dampening investor sentiments in the defense industry but it will take considerable time to lead to actual disarmament and self-defense and modernizing weapons will remain necessary, noted Lee. Catalysts for defense stock price have generally been overseas orders, he added, cautioning against premature pessimism. 

By Hwang You-mee (glamazon@heraldcorp.com)