Hanwha Investment & Securities said on the 11th that LIG Defense&Aerospace not only posted strong results in the first quarter of this year but also has very clear visibility for mid- to long-term profit growth. It maintained a "Buy" investment rating and raised its target price by 42% to 1.05 million won from 740,000 won. LIG Defense&Aerospace's previous closing price was 840,000 won.
LIG Defense&Aerospace reported first-quarter results of 1.1679 trillion won in revenue and 171.1 billion won in operating profit this year. Those figures rose 28.7% and 50.6%, respectively, from a year earlier. In particular, operating profit beat the consensus (market average estimate) by 46%.
Bae Seong-jo of Hanwha Investment & Securities explained, "It was because the export share jumped to 34.7% due to early delivery of Cheongung-II missiles to the United Arab Emirates (UAE) and additional contracts."
The utilization rate related to missiles is still around 80%, leaving room to spare. Bae noted, "Even though revenue is recognized on a percentage-of-completion basis, the early delivery effect showed up in the results, which is also positive," adding, "It is worth watching whether additional delivery volumes occur going forward."
First-quarter export revenue came to 405.2 billion won, up 119% from a year earlier. The export operating profit margin (OPM) was estimated at about 30%. About 170 billion won in revenue from exporting Cheongung-II to the UAE was reflected.
Bae said, "Considering the peculiarities of the first quarter, we estimate revenue to the UAE in the second to fourth quarters relatively conservatively," but added, "Revenue related to spare parts and training costs is expected to continue going forward."
He added that estimates could be raised even if additional export volumes occur.
In this situation, the fallout from the Iran war is expected to deepen the shortage of air-defense missiles. Bae judged that discussions on new introductions of Cheongung-II are likely taking place in several Middle Eastern countries, including Qatar.
Bae said, "The urgent need for missiles may ease somewhat after the end of the war, but we expect the pace of building air-defense systems in each country to accelerate further in light of this incident."
In addition, starting in 2028, revenue related to the facility investments currently underway will be generated, and revenue from Cheongung-II in Saudi Arabia and Iraq is also expected to ramp up in earnest. As a result, visibility into mid- to long-term profit growth was assessed to be very clear.