LS Securities on the 22nd said that despite Hanwha Aerospace's third-quarter results likely falling short of market expectations (consensus), expectations remain for strengthened competitiveness through portfolio diversification. It raised the target price 13.6% to 1.25 million won from 1.1 million won and maintained a Buy rating.
Hanwha Aerospace's third-quarter results on a consolidation basis are expected to be 6.295 trillion won in revenue and 743 billion won in operating profit. Revenue would rise 126% from a year earlier, but operating profit would fall 12.4%, delivering results somewhat below consensus.
Choi Jeong-hwan of LS Securities said, "With second-quarter expense related to Poland's system development deferred to the second half, results are expected to miss consensus," but added, "K9 self-propelled howitzers and Cheonmu bound for Poland appear set to lead results, and as mass production of K9 self-propelled howitzers for Egypt and Australia begins, we estimate a small portion of those volumes will be recognized as revenue."
However, expectations remain for future earnings improvement through product diversification. In the first half of this year, the company signed a joint development contract for unmanned aerial vehicles with U.S. aerospace company General Atomics, adding an aviation system that had been cited as a weakness in its defense portfolio. With the expansion of the product portfolio, there are also assessments that synergy with the aircraft engine division is expected. As it develops a wheeled K9 self-propelled howitzer, its bidding competitiveness in the U.S. self-propelled howitzer modernization program is also expected to strengthen.
Choi said, "The basis for the target price raise is short-term earnings strength from the concretization of cooperation with global defense companies alongside product portfolio diversification, and the securing of mid- to long-term growth drivers," adding, "We maintain it as the top pick in the sector."