Defense Stocks Rose Significantly but Are "Still Cheap"... Why Securities Firms Focus on K-Defense

DX-Korea 2022 Opens Today... Growing Expectations for Large-Scale Orders
Hanwha Aerospace Up 70% in 6 Months, Korea Aerospace Industries Up 27%
"Due to Global Active Demand," Securities Firms Raise Target Prices Across the Board

[Asia Economy Reporter Kwon Jae-hee] Defense stocks, which have surged rapidly in the short term under the theme of 'Taejo Ibangwon (Solar Power, Shipbuilding, Secondary Batteries, Defense, Nuclear Power)', are expected to continue a long-term boom. In particular, the 'Defense Expo Korea 2022 (DX-Korea 2022)', which opens today, is raising expectations for large-scale orders, stimulating momentum in defense stock prices.

According to the Korea Exchange on the 21st, the stock price of the newly listed Hanwha Aerospace has risen by about 70% over the past six months (March 21 to September 21). This contrasts with the KOSPI index's average increase of about -14% during the same period. Along with Hanwha Aerospace, Korea Aerospace Industries, a representative defense stock, showed a 27% increase during the same period.

In the securities industry, although defense stocks have already surged in the short term, there is still ample room for further growth. This is because the export of Korean defense has established itself as a new growth engine due to the Russia-Ukraine war, and the demand for defense industry, which was previously politically sensitive, has shifted to active demand after the Russia-Ukraine war. In particular, the fact that large contract discussions are taking place following the recent contract with Poland also confirms this.

The 'Defense Expo Korea', Asia's largest international defense exhibition opening today, is also cited as a factor raising expectations for a jackpot of orders. Countries with high order expectations currently include Slovakia, Malaysia, Australia, Norway, Romania, and Saudi Arabia. Especially Slovakia, which shares borders with Poland and Ukraine, has dispatched a large delegation of about 30 people led by the Minister of National Defense to the event today. Slovakia, which plans to visit Korea Aerospace Industries, Hanwha Defense, and Hyundai Rotem in Sacheon and Changwon, Gyeongnam, not only for DX-Korea but also for exploration, is known to have delivered a specific list of weapons it hopes to introduce to the Korean side.

With the continuous order rally of defense companies, securities firms are unanimously raising target prices for defense companies. According to financial information provider FnGuide, the average target price for Korea Aerospace Industries is 74,333 KRW, about 24% higher than 59,875 KRW three months ago. Hanwha Aerospace also rose from 70,375 KRW to 95,315 KRW during the same period. LIG Nex1 (113,250 KRW → 129,000 KRW) and Hyundai Rotem (23,250 KRW → 34,000 KRW) also saw their target prices raised during the same period. Shinhan Financial Investment suggested that the combined target market capitalization of five defense companies (Korea Aerospace Industries, Hanwha Aerospace, LIG Nex1, Hanwha Systems, Hyundai Rotem) is 24 trillion KRW, indicating a 44% upside potential compared to the current market capitalization of 16 trillion KRW.

Researcher Lee Dong-heon of Shinhan Financial Investment said, "Although domestic defense stocks have risen significantly in a short period, considering their position in the global defense market, they are still undervalued," and analyzed, "If the momentum of our defense companies' stock prices was previously driven by domestic demand, going forward, their position and market share in the global defense market will become important, so the momentum will not simply end because the stock prices have risen a lot."

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