DAOL Investment & Securities evaluated that Hanwha Aerospace’s large-scale capital increase would dilute existing shareholders' stocks. It then lowered the target price from 780,000 won to 700,000 won and suggested a neutral (HOLD) investment opinion. On the 20th, Hanwha Aerospace's closing price was 722,000 won.
On the 21st, Choi Kwang-sik, a researcher at DAOL Investment & Securities, noted, “I agree on the necessity of investment for localization of defense manufacturing in Europe and the Middle East and entry into the U.S. combat ship market for a joint venture (JV),” but he added, “The funding method is disappointing.”
The day before, Hanwha Aerospace announced a capital increase worth 3.6 trillion won. It stated that 2.4 trillion won would be used to acquire securities from other corporations, while the remaining funds would be invested in facilities. The company will proceed with remaining shares allocated to shareholders through a public offering. The atmosphere at the Financial Supervisory Service (FSS), which examines the capital increase, is also not negative. The FSS stated, “We can positively evaluate the initiative to raise funds necessary for establishing a leading position in K-defense.”
Choi noted that there are also methods for mobilizing the company's operating profit rather than relying on shareholder funding through capital increase. He explained, “The capital expenditure (CAPEX) over the next five years seems sufficiently feasible based on this year’s consolidated operating profit of 3.5 trillion won and subsequent steady profits.”
He further questioned, “Even if we assume that the investment is concentrated over 3 to 4 years, it is questionable whether there were no other capital raising options,” adding that “last year, Hanwha Aerospace's consolidated operating profit was 1.7 trillion won.”
DAOL Investment & Securities projected that of the 1.6 trillion won raised through Hanwha Aerospace’s capital increase, 1 trillion won will be used for overseas defense investments, 900 billion won for domestic defense CAPEX, 800 billion won for overseas shipbuilding, and 300 billion won for drone engines.
Choi divided investors into two groups and presented investment strategies. The first group consists of investors who agree with the company's capital increase. He stated, “If investors are strongly in favor of quick investments in Hanwha's entry into the U.S. special operations market, a long-term investment strategy of purchasing and participating in the capital increase by the 22nd of next month would be appropriate.”
Regarding the second group of investors who cannot agree with the capital increase, he added, “If shareholders are sensitive to risks while reflecting on past investment failures by Hanwha (such as Overair and Phaser), I recommend waiting and setting a lower valuation multiples than the price-earnings ratio (PER) of 20 proposed by DAOL Investment & Securities.”