BNK Investment & Securities on the 17th analyzed that it plans to establish a joint venture with Germany's global defense company Rheinmetall to supply cutting-edge air defense systems to Europe and NATO. It kept its investment opinion at "buy" (BUY) and its target price at 1.18 million won. The previous session's closing price was 1,002,000 won.
BNK Investment & Securities said it will soon establish a joint venture (JV) in which Rheinmetall holds a majority equity stake and LIG Defense&Aerospace participates.
Lee Sang-hyun, an analyst at BNK Investment & Securities, said, "Because the joint venture establishment is at the memorandum of understanding (MOU) stage, the specific timing, scale, and equity structure of the investment have not yet been mentioned," adding, "Rheinmetall is expected to hold a majority (more than 50%) and LIG Defense&Aerospace to hold the remaining equity."
The analyst said that after the wars in Ukraine and the Middle East, the importance of an independent and rapid weapons supply chain has been rising in Europe. The analyst assessed that Rheinmetall, focused on land defense, chose a strategic partnership to actively respond to soaring demand for air defense systems and missiles and to establish itself as a powerful "defense powerhouse" in Europe.
LIG Defense&Aerospace is also expanding production capacity, but as orders keep piling up, capacity was not ample; given in-region procurement expense in Europe, the company viewed a joint venture as necessary for exports.
The analyst said, "LIG Defense&Aerospace plans to localize and market its combat-proven medium- and long-range air defense missile systems (L-SAM, MSAM-II, etc.) by linking them with Rheinmetall's mainstay very short range air defense (VSHORAD) capability," adding, "By jointly developing new missiles and technologies for short range air defense (SHORAD), the companies will provide a single-window solution that counters all layers of aerial threats from very short to long range."
The analyst said LIG Defense&Aerospace's joint venture and localization strategy is a key momentum to break through Europe's clear "intra-regional defense strengthening strategy (EDIS)." The analyst assessed that LIG Defense&Aerospace has secured a foundation for long-term, structural profit generation in the European market beyond one-off exports.
The analyst said, "The EU is raising entry barriers to non-European weapons, including by sharply increasing the share of intra-regional weapons procurement from about 20% now to 50% by 2030 and over 60% by 2035," adding, "In a market environment where simple exports face clear limits, the strategy of establishing a joint venture with a top-tier European partner and pursuing local production is the optimal solution to lower the hurdles for K-defense and directly penetrate Europe's defense ecosystem."