Meritz Securities said on the 24th that while Korea Aerospace Industries is expected to post disappointing results for the third quarter (July to September) this year, expectations are high for a recent rebound in the global defense industry. The firm maintained a Buy rating and raised its target price to 130,000 won from 115,000 won. Korea Aerospace Industries closed at 101,300 won the previous day.
Meritz Securities estimated that Korea Aerospace Industries will post third-quarter sales of 837.2 billion won and operating profit of 68.5 billion won. Both sales and operating profit are well below the market consensus (1.0123 trillion won and 79.1 billion won).
Lee Ji-ho, a researcher at Meritz Securities, said, "Delays in deliveries of rotary-wing aircraft in the domestic business served as a key factor," and noted, "There also appear to have been some delays in the FA-50 program for Poland."
However, "the rotary-wing aircraft (LAH) not reflected in the third quarter will be fully recognized in the fourth quarter, and on an annual basis, it appears the delivery guidance will be met (target of 13 units in total/2 units completed in the first half)," adding, "The Poland program has only experienced delays at the quarterly level, so it is not in a situation that disrupts the overall program, and therefore the possibility that concerns will expand regarding future results is seen as limited."
The researcher judged that this is the beginning of an order expansion phase. It is positive that highly scalable programs, such as the U.S. Navy trainer aircraft program and the Middle East-bound KF-21, are gradually becoming visible. In addition, the second batch of Malaysia-bound F-50s and the Egypt FA-50 program are also expected to take concrete shape next year, so expectations are likely to grow rather than disappointment.
The researcher said, "We reflected the effects of multiple expansion following the recent rebound in the global defense industry and the change in the timing of fair value estimation," and added, "In the first half of next year, the defense sector is likely to center on developments related to entry into the U.S. market due to multiple momentum drivers (trainer aircraft, K9, propellants, Bigung)."