DB Securities said on the 6th that structural demand for weapons is expected to expand after the Middle East war for LIG Nex1. It kept its "buy (BUY)" rating and raised the target price to 1.2 million won from 600,000 won. The previous trading day's closing price of LIG Nex1 was 860,000 won.
Seo Jae-ho, an analyst at DB Securities, said, "As air defense risks in the Middle East expand, there is a possibility that ammunition delivery could be moved up after batteries are deployed to those countries," and added, "As the need for air defense weapons to counter low-cost drones increases, demand for guided weapons is expected to grow given the company's strong price-to-performance competitiveness among global peers."
In particular, from this year through 2028, revenue from the export of Cheongung II (M-SAM2, medium-range surface-to-air missile) will be recognized in overlapping periods, making the export business's contribution to earnings more pronounced.
LIG Nex1's first-quarter revenue is projected at 1.1 trillion won and operating profit at 117 billion won. Revenue and operating profit are up 19.2% and 10.8%, respectively, from a year earlier. The company holds a backlog of roughly 26.2 trillion won, and revenue recognition for M-SAM2 bound for the United Arab Emirates (UAE) is set to ramp up, which is expected to drive results.
Specifically for the UAE-bound M-SAM2, when the first battery was deployed in the third quarter of last year, revenue rose to about 120 billion won. With battery and missile deliveries also reported to have taken place in the first quarter of this year, the report reflected about 175 billion won in revenue, assuming a higher progress rate for this project from the previous quarter.
In addition, from the second quarter of this year, revenue recognition from the Saudi-bound M-SAM2 project will be reflected. Accordingly, the operating profit margin (OPM) is projected to rise to around 9.2% this year.
Seo added, "It is necessary to consider that the surge in demand for conventional weapons mentioned in the early phase of the Russia-Ukraine war in early 2022 led to large-scale exports to Poland by Korea's defense industry in that year."