"Pungsan and Bangsan Export Expansion... Q2 Stock Price Recovery Expected"

[Asia Economy Reporter Minji Lee] Pungsan is expected to improve its performance from the second quarter due to the expansion of its defense business. Accordingly, Kiwoom Securities maintained a buy rating on the 1st and raised the target price by 19% from the previous level to 31,000 KRW.

Pungsan recorded an operating loss of 1.6 billion KRW in the first quarter, while the market had expected a loss of 8.8 billion KRW. This was due to a larger-than-expected inventory valuation loss by consolidated subsidiaries caused by the sharp drop in copper prices.

Researcher Jonghyung Lee of Kiwoom Securities said, "It is estimated that the US PMX incurred inventory-related losses exceeding 10 billion KRW," adding, "Due to the spread of the COVID-19 virus, copper prices plunged from $6,300 to the $4,700 range." Excluding the decline in copper prices, the headquarters' defense sales in the first quarter increased by 1% year-on-year to 101.1 billion KRW.

However, since copper prices have recently recovered to $5,000, performance is expected to normalize from the second quarter.

The company recently announced a defense export contract to the Middle East worth 97.5 billion KRW. The contract amount accounts for 71% of last year's annual defense export sales of 135 billion KRW, and a full-scale export expansion is expected from the second quarter.

Researcher Lee explained, "The US, the largest market for defense exports, is showing signs of stockpiling for the first time in about four years amid the spread of COVID-19 and the upcoming year-end presidential election," adding, "It is necessary to keep the possibility of export recovery open."

Also, domestic defense, which had been sluggish due to ammunition procurement issues caused by production disruptions at Hanwha's Daejeon plant last year, has normalized since the fourth quarter of last year. Therefore, the company's defense business, which had been sluggish for the past two years, is expected to see a confident turnaround starting this year.

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