Defense Industry Stocks, Spotlight on the Eagle Five

[Asia Economy Reporter Park So-yeon] Since the beginning of the year, the stock prices of domestic defense companies have risen sharply. This is due to significant events such as the expansion of overseas orders including Poland and the restructuring of Hanwha Group's defense business.

According to FN Guide on the 3rd, Hanwha Investment & Securities recently stated in a report on the defense industry, "The domestic defense industry is expected to see momentum in overseas orders this year, and from next year onwards, performance improvement through overseas orders will be in full swing."

Orders from Poland are expected to lead to profit improvement and new market development. In July, Hyundai Rotem, Hanwha Aerospace, and Korea Aerospace Industries each signed basic contracts with the Polish Armaments Agency to supply K2 tanks, FA-50 light combat aircraft, and K9 self-propelled howitzers, respectively. In August, Hyundai Rotem and Hanwha Defense announced supply contracts worth 4.5 trillion KRW and 3.2 trillion KRW, respectively. Since delivery must be completed between 2022 and 2025, although these are export contracts, sales recognition will unusually occur immediately. Due to the high contract unit price, an annual operating profit increase of over 100 billion KRW is expected. Additionally, as performance upgrades are included, it is anticipated to be advantageous for new market development.

In September, the Australian Redback awaits. The preferred negotiator selection for Australia's 'Land 400 Phase 3' is scheduled for September. Furthermore, as NATO member countries have declared increases in defense spending due to the Russia-Ukraine war, the export market is expected to expand further.

The restructuring of Hanwha's business structure was evaluated positively. In July, Hanwha Group announced a business restructuring integrating Hanwha's construction and Hanwha Aerospace's defense sectors. Hanwha's absorption merger with Hanwha Construction alleviated concerns about separate listing and increased dividend capacity, which is positive. Hanwha Aerospace resolved concerns about the separate listing of Hanwha Defense and reduced the proportion of the civilian sector, mitigating worries about performance decline in the civilian sector. Hanwha Aerospace is also expected to benefit from synergies in the defense sector acquired from Hanwha.

The selection of the Nuriho advancement project operator is also imminent. The selection of the Nuriho launch vehicle advancement project operator is scheduled for September. The selected company is likely to lead the next-generation launch vehicle project and is expected to grow into a Korean version of SpaceX.

The aircraft parts market continues to show steady recovery despite the resurgence of COVID-19. The cumulative order volume reached 970 units by July, a 237% increase compared to the same period last year.

Hanwha Investment & Securities stated, "We maintain Hanwha Aerospace as our Top Pick and suggest LIG Nex1 as the second-best stock," adding, "Hanwha Aerospace is expected to have order momentum in the second half, and LIG Nex1 is expected to improve performance due to export expansion."

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