US-Iran Conflict, Defense Stocks Rally? ... 'Big 2' on the Decline

[Asia Economy Reporter Ko Hyung-kwang] Amid the majority of domestic defense stocks showing strength due to the conflict between the U.S. and Iran, the stock prices of the 'Big 2' defense companies, Korea Aerospace Industries and Hanwha Aerospace, are showing contrasting downward trends. It is analyzed that poor earnings and delays in various development projects are holding back these stock prices.

According to the Korea Exchange on the 8th, Hanwha Aerospace closed at 34,650 KRW, down 1.4% from the previous day. Compared to the recent peak stock price of 44,800 KRW at the end of September last year, this is a 22.6% drop.

The stock price decline is attributed to poor earnings. Securities firms estimate Hanwha Aerospace's operating profit for Q4 last year to be in the 33 billion KRW range, a sharp decrease of about 40% compared to the same period the previous year.

It is expected that one-time costs such as the acquisition cost of the U.S. aircraft engine parts specialist EDAC, provisions related to the Surion engine, and development costs for the Australian Army's future tracked armored vehicle acquisition project (LAND400) will be significantly reflected, leading to poor Q4 performance.

Hwang Eo-yeon, a researcher at Shinhan Financial Investment, explained, "The operating profit for Q4 last year is expected to fall nearly 30% short of the market forecast of 46 billion KRW," adding, "The cause of the poor performance is the reflection of one-time costs amounting to 40 billion KRW."

Securities firms are consecutively lowering their target prices for Hanwha Aerospace. NH Investment & Securities lowered its target price from 50,500 KRW to 44,000 KRW on the same day, and KB Securities set a target price of 45,000 KRW on the 6th, down 6.3% from the previous target. Earlier, Shinhan Financial Investment also revised its target price down by 7.4% to 50,000 KRW.

Korea Aerospace Industries is struggling to gain momentum in its stock price due to delays in various development projects. The closing price of 33,700 KRW on the previous day is down 19.9% compared to the stock price of 42,100 KRW on September 5 last year, four months ago.

Choi Jin-myung, a researcher at NH Investment & Securities, diagnosed, "In the case of Korea Aerospace Industries, the schedule for the next-generation armed helicopter project, targeted for completion in 2023, is delayed, and the timing of the mass production contract signing is expected to be postponed from 2021 to 2022. While the long-term growth model remains valid, the recent stock price trend is weak due to delays in various projects."

Meanwhile, as of 9:53 a.m. on the same day, defense company Big Tech was trading at 4,130 KRW, up 16.01% from the previous trading day. In addition, most defense stocks showed sharp rises, including Speco (11.24%), Firstec (25.55%), Mirae I&G (16.15%), and Hanil Forging (11.29%).

This content was produced with the assistance of AI translation services.