[Click eStock] Focus on Ukraine-Triggered Military Buildup... Hanwha Aerospace Target Price Up

[Asia Economy Reporter Myung-Hwan Lee] Kiwoom Securities announced on the 31st that it maintains a buy rating on Hanwha Aerospace and raises the target price from the previous 63,000 KRW to 70,000 KRW. This is based on the judgment that the European-centered military buildup movement due to the Ukraine war will be favorable to the defense business environment.

Kiwoom Securities expects the company's operating profit for the first quarter of this year to be 43.3 billion KRW, down 34% year-on-year but better than initially expected. Although the defense sector is entering the off-season and investment costs for new system businesses are expected to increase, the civilian sectors such as Techwin and precision machinery are showing favorable profitability supported by exchange rate effects. Kiwoom Securities estimates Hanwha Aerospace's sales this year to increase by 8% year-on-year to 6.9412 trillion KRW, while operating profit is expected to decrease by 8% to 353.2 billion KRW.

Kiwoom Securities analyzed that the military buildup movement centered on Europe triggered by the Ukraine war is likely to be favorable to the defense business environment. This is because the main export countries operating the K9 self-propelled howitzer, a major export product of its subsidiary Hanwha Defense, are mainly European countries such as Poland, Finland, Norway, Estonia, and Turkey. Recently, overseas order momentum has resumed with successful exports of K9 self-propelled howitzers to Australia and Egypt, and the result of the selection of the preferred bidder for Australia's next armored vehicle procurement project in June is also noteworthy.

The aerospace division is expected to see a gradual recovery in aircraft parts sales following the recovery in passenger demand. Although Techwin has seen increased costs such as logistics and material expenses, North American business-to-business (B2B) sales remain strong, so profitability is expected to recover again. The power system is analyzed to be favorable as high oil prices could lead to increased investment demand in upstream industries. Precision machinery faces market uncertainties due to China's COVID-19 lockdown policies and supply shortages, but it is expected to maintain favorable profitability based on structural improvement results.

Ji-San Kim, a researcher at Kiwoom Securities, said, "Except for the increased costs of aerospace international joint development projects (RSP) and new system business investments, the company will maintain a significantly improved profit scale compared to the past," adding, "The key to the stock price direction will be the overseas order momentum in the defense sector."

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