Defense stocks that faced adjustments... Will they soar with the start of 'Poland export'?

[Image source=Yonhap News]

[Asia Economy Reporter Lee Myunghwan] Among the leading stocks that recently moved the stock market, known as ‘Taejoibangwon’ (Solar Power, Shipbuilding, Secondary Batteries, Defense, Nuclear Power), defense stocks have experienced price adjustments, but the securities industry still views their investment appeal as intact.

According to the Korea Exchange on the 21st, the stock price of Korea Aerospace Industries, a representative defense stock producing the Korean fighter jet ‘KF-21,’ fell by 22.99% over the past two months (August 19 to October 20). This stock, which was priced at 56,100 KRW on August 19, closed at 43,200 KRW on the 20th.

During the same period, other defense stocks such as Hanwha Aerospace (-15.83%), Hyundai Rotem (-6.80%), and LIG Nex1 (-3.20%) also showed a downward trend. This appears to be due to the fading effect of the positive news from the large-scale defense export contract to Poland in August. At the same time, the disappearance of momentum for additional orders contributed to the stock price decline.

In the case of Hanwha Aerospace, it was also affected by the restructuring of Hanwha Group’s ownership. Hanwha Aerospace plans to acquire Hanwha’s defense business division by the end of next month and merge its subsidiary Hanwha Defense to focus on the defense business. Additionally, Hanwha Power Systems, which is not part of the defense sector, was transferred to an affiliate, and Hanwha Precision Machinery is also planned to be sold. The securities industry has diagnosed that increased volatility in Hanwha Aerospace is inevitable until the end of the year, when acquisition procedures are concentrated.

However, the delivery of K-2 tanks and K-9 self-propelled howitzers to Poland, which began on the 19th, is seen as a potential turning point. This is because deliveries to Poland will be reflected in the fourth-quarter performance of defense companies. Expectations for additional defense orders in 2023 are also sufficient. Good news continues, such as Hanwha Defense signing a supply contract on the 19th to provide 288 units of the ‘Cheonmu’ multiple rocket launcher to Poland.

There is also an assessment that the investment appeal of defense stocks remains valid even in the current economic slowdown. Lee Dongheon, a researcher at Shinhan Investment Corp., stated, “Poland’s radical expansion of defense supplies is an exceptional case, and export negotiations with other countries are proceeding normally. The global situation of the new Cold War and nationalism is not expected to change easily, and defense companies have abundant order expectations for 2023.”

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