[Stock of the Week] Can Hanwha Aerospace Soar Even Higher?

Share Price Slows After Israel-Hamas Ceasefire
Operating Profit Expected to Grow Through 2027 Even Without Major New Orders
Continued Expectations for Additional Orders of K9, Cheonmu, and Redback

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Investor sentiment toward defense stocks has cooled following the ceasefire agreement between Israel and Hamas. Even Hanwha Aerospace, a leading defense stock that hit an all-time high earlier this month, saw its share price drop immediately after the Chuseok holiday. There is growing interest in the future trajectory of Hanwha Aerospace’s stock, which had been on an upward trend this year thanks to exports of its flagship K9 self-propelled howitzer and Chunmoo multiple rocket launcher system. In the securities industry, many believe it is important to focus more on fundamentals, given the company’s large backlog of orders and continued expectations for additional exports.

70 Trillion Won in Revenue and 10 Trillion Won in Operating Profit Targeted in 10 Years

The origin of Hanwha Aerospace traces back to Samsung Techwin, which Hanwha Corporation acquired from Samsung Group in 2015. Hanwha Group went on to acquire Hanwha Systems (formerly Samsung Thales, radar and satellite payloads) in 2015, Hanwha Defense (formerly Doosan DST, anti-aircraft weapon systems and armored vehicles) in 2016, Satrec Initiative (satellite systems) in 2021, and Hanwha Ocean (formerly Daewoo Shipbuilding & Marine Engineering, warships and submarines) in 2023. Over several years, Hanwha Aerospace integrated the group’s defense businesses and, with the spin-off of non-defense units such as Hanwha Vision last year, transformed into a comprehensive defense company spanning land, sea, and air. However, in the consolidated financial statements, the marine segment accounts for over 60% of revenue due to subsidiary Hanwha Ocean (30.4% ownership).

Hanwha Aerospace’s core businesses are in the defense sector, including the K9 self-propelled howitzer, Chunmoo multiple rocket launcher, and Redback armored vehicle. Large-scale export contracts, starting with Poland, a NATO member bordering Russia, have driven both performance and share price growth. In the aerospace segment, the company produces F404 and F414 engines under license for domestic fighter jets such as the KF-21 and FA-50, while also pursuing R&D for engine localization. In the civilian sector, Hanwha Aerospace supplies parts to major engine manufacturers such as GE, Rolls-Royce, and Pratt & Whitney.

This year, Hanwha Aerospace carried out a rights offering worth over 4 trillion won and announced plans to invest 11 trillion won over four years until 2028 to become one of the world’s top 10 defense companies. More than half of this investment will go toward global projects, including establishing a Chunmoo joint venture (JV) in Poland, a JV with Saudi Arabia’s National Guard, a smart munitions factory in the United States, a European ground weapons hub in Romania, and overseas shipyard investments. With this aggressive expansion, the company is targeting 70 trillion won in revenue and 10 trillion won in operating profit by 2035.

Stock Has Risen Sharply, But Fundamentals Remain Solid

Earlier this month, Hanwha Aerospace’s share price briefly reached 1,127,000 won during intraday trading, nearly matching the average target price of 1.27 million won set by securities firms. However, the stock turned weaker after the Chuseok holiday. Analysts advise investors to focus on fundamentals. They commonly cite the company’s strong cost-effectiveness and fast delivery times compared to global competitors. Chae Woonsam, an analyst at Hana Securities, said, “If the current product delivery pace is maintained, annual operating profit is expected to increase through 2027 even without additional large-scale overseas orders. The defense order backlog, worth about 31 trillion won-equivalent to four years of work-is a safety net against the uncertainty of new order timing.”

Since 2020, the K9 has held more than half of the global market share, and exports are now expected to expand beyond its existing markets in Eastern Europe, the Middle East, and Asia to include the United States and Western Europe. Notably, Hanwha Aerospace is preparing to participate in the U.S. Army’s Self-Propelled Howitzer Modernization Program (SPH-M). The K9 is the first foreign platform to successfully fire the XM1113 shell, developed for the next-generation U.S. self-propelled howitzer, and the K10 ammunition resupply vehicle, which enables automated ammunition supply-a key feature for future artillery operations-gives Hanwha Aerospace a competitive edge. In addition, countries already operating the K9 are placing additional orders. Paek Jongmin, an analyst at Yuanta Securities, noted, “Finland, Norway, and Estonia have already allocated budgets and obtained approvals from relevant ministries for additional acquisitions, making it highly likely that contracts will be finalized within the year.”

The Chunmoo multiple rocket launcher, which gained prominence as Ukraine used the U.S. HIMARS system, is expected to follow in the K9’s footsteps. The establishment of a local Chunmoo JV in Poland enables rapid response, which is likely to appeal to European countries considering procurement, such as Norway, France, and Estonia. The fact that HIMARS deliveries would take four to five years even if ordered now is another advantage for Hanwha Aerospace.

Additional orders for the Redback armored vehicle, which beat Germany’s Rheinmetall and is preparing for production in Australia, are also anticipated. Romania’s next-generation armored vehicle procurement project, worth about 4 trillion won, is expected to select a final contractor by next year at the latest. Hanwha Aerospace, which has already established a subsidiary in Romania, can leverage its existing K9 factory for local production and powerpack sharing to create synergies.

With expectations that Europe’s rearmament and resulting shell shortages will continue until 2032, Hanwha Aerospace’s munitions (propellants for firing shells) business is also drawing attention. Once the new plant in Boeun, North Chungcheong Province, is completed at the end of next year, munitions production is expected to more than double. Yuanta Securities forecasts annual revenue growth of 320 billion to 400 billion won starting in 2027.

The Middle East and Aerospace Sectors Are Future Growth Engines

While Europe, including Poland, is the largest visible market, the Middle East also offers strong export prospects. DB Securities estimates potential demand in the Middle East-including Saudi Arabia, the United Arab Emirates (UAE), Iraq, and Qatar-at 97.9 trillion won for armored vehicles and 35.8 trillion won for self-propelled howitzers. The K9 demonstrated its performance in desert environments during joint drills in Qatar last year and the UAE this year. Considering the high recognition of the tracked K9, the improved mobility of the wheeled K9, and essential ammunition demand, orders from the Middle East are expected to drive future growth.

The aerospace segment is still operating at a loss. However, in the long term, the KF-21 engine and unmanned aerial vehicle businesses are expected to become future growth engines. The KF-21 currently uses the F414 engine from U.S.-based GE, but localization will be essential to target export markets. Hanwha Aerospace aims for 100% localization by the mid-2030s. In April of this year, Hanwha Aerospace signed an MOU with General Atomics, a U.S. unmanned aerial vehicle specialist, to jointly develop short takeoff and landing UAVs (STOL). Hanwha Aerospace is responsible for engine development, with the first flight targeted for 2027.