[Click eStock] "Hanwha Solutions Experiencing Growing Pains in New Business... Target Price Maintained"

[Asia Economy Reporter Myunghwan Lee] IBK Investment & Securities announced on the 15th that it maintains a buy rating and a target price of 23,000 KRW for Hanwha Solutions. This is because the pace of investment in new businesses is accelerating, and the scale of investment losses is expected to decrease.

IBK Securities forecasts Hanwha Systems' expected sales for the second quarter of this year to increase by 10% year-on-year to 536 billion KRW, while operating profit is expected to decrease by 27% to 22.9 billion KRW. The operating profit margin is projected to decline by 2.2 percentage points from the same period last year to 4.3%. Although the top line is expected to grow compared to the same period last year, the downward trend in profits is expected to continue. However, the decline is anticipated to moderate.

By business segment, the defense sector is expected to maintain a favorable trend. The ICT sector is expected to see a reduction in profit decline as its scale expands, and losses in the new business segment are expected to continue at a level similar to the previous quarter.

Looking at the full year, sales are projected to increase by 9% year-on-year to 2.2823 trillion KRW, while operating profit is expected to decrease by 10% to 100.7 billion KRW. The operating profit margin is estimated to decrease by 1 percentage point to 4.4%. This is explained by the expectation that investment losses in new businesses will more than double compared to the previous year.

In the mid to long term, it is diagnosed that the profit margin of the ICT sector may decline as the captive ratio decreases. However, it is noted that overseas business expansion, such as the export of Cheongung to the UAE in the defense sector, is expected to lead to overall profitability improvement. The new business division is expected to reduce the scale of investment losses depending on the speed of commercialization.

IBK Securities researcher Sanghyun Lee said, "The 2022 performance is understood as a process of growing pains in new businesses amid growth in existing businesses," and added, "In the mid to long term, profit will increase due to expanded defense exports and losses will decrease through commercialization of new businesses."

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