[Click eStock] Korea Aerospace Industries, High Performance Expected in Second Half

On the 9th, IBK Investment & Securities maintained a buy rating and a target price of 69,000 KRW for Korea Aerospace Industries. The implied price-to-earnings ratio (PER) of the target price is around 28 times.

Lee Sang-hyun, a researcher at IBK Investment & Securities, stated, "Although the first quarter results fell short of consensus, strong performance is expected in the second half of the year," adding, "Expansion of complete aircraft exports to major countries is anticipated, and with the recovery of travel demand, aircraft parts performance is also expected to show a recovery trend, continuing the level-up process."

The consolidated operating results for the first quarter recorded sales of 568.7 billion KRW (-11%), operating profit of 19.4 billion KRW (-51%), and an operating margin of 3.4% (-2.7 percentage points). The operating profit was 56% below the consensus of 44.5 billion KRW. Sales disruptions totaling approximately 113.2 billion KRW occurred due to the postponement of reconstruction work at the Iraq base (81.4 billion KRW) and a revised contract for the second phase of the Polish tactical introductory trainer project (31.8 billion KRW). Consequently, operating profit was also impacted by 21.3 billion KRW and 4.7 billion KRW respectively, resulting in a total shortfall of 25 billion KRW in operating profit. It is assessed that without these disruptions, the results would have met consensus. The unreflected portions related to the Iraq base reconstruction and Poland are expected to be reflected within the third quarter. In particular, deliveries of FA-50 aircraft to Poland are scheduled for 4 units in the third quarter and 8 units in the fourth quarter, and 2 advanced trainers are also planned for delivery to Thailand, which is expected to significantly improve second-half performance.

First quarter orders amounted to 1.3775 trillion KRW, achieving 31% of the annual order guidance of 4.4769 trillion KRW. Domestic projects secured 38.3 billion KRW in orders, including the Korean Launch Vehicle advancement project. Complete aircraft exports recorded 1.2008 trillion KRW in orders, including a contract for 18 FA-50 aircraft to Malaysia, and aircraft parts orders reached 138.4 billion KRW from clients such as Boeing and Airbus. At the end of the first quarter, the order backlog stood at 25.0537 trillion KRW, composed of 8 trillion KRW in domestic projects, 6.2 trillion KRW in complete aircraft exports, and 10.9 trillion KRW in aircraft parts. The order backlog corresponds to approximately 8 to 9 years of sales based on last year's revenue.

The researcher noted, "There are also significant expected orders in the future," pointing out, "An order for 40 to 100 FA-50 light attack aircraft from the Egyptian Air Force could be placed as early as the end of this year or early next year, and Poland’s state-owned defense company PGZ has expressed interest in participating as a joint developer in the KF-21 project, raising expectations for acquisition through joint development." He added, "Preparations are also underway to participate jointly with Lockheed Martin in a project involving up to 500 training and tactical introductory aircraft for the U.S. Air Force and Navy."

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