Daol Investment & Securities on the 22nd said LIG Defense&Aerospace(079550) is expected to continue a long growth run on the back of rising demand for surface-to-air weapons systems due to the prolonged Middle East war and facility investment.
It maintained a "buy" investment rating and raised the stock to a preferred pick within the defense sector, but lowered the target price to 980,000 won from the previous 1,100,000 won to reflect adjustments to the value of the order pipeline. The previous trading day's closing price was 672,000 won.
For the second quarter of this year on a consolidation basis, LIG Defense&Aerospace's revenue is estimated at 1.1841 trillion won, up 25% from a year earlier, and operating profit at 98.7 billion won, up 27%. This is below the market consensus (operating profit 104.9 billion won). Net profit attributable to controlling shareholders is expected to be 68.6 billion won, down 35% from a year earlier.
Choi Gwang-sik, an analyst at Daol Investment & Securities, said, "The effect from the urgent delivery of 50 billion won worth of Cheongung-II parts to the United Arab Emirates (UAE) in the first quarter is absent in the second quarter, and exports of precision-guided munitions (PGM) also benefited from a first-quarter base effect."
Choi said the mid- to long-term momentum based on year-over-year growth will continue. Choi noted, "We need to focus on year-over-year revenue and profit growth," and analyzed, "With the longest backlog (exports 14.2 trillion won, this year's export revenue 1.3 trillion won) and expanded production capacity for it, long-term growth is secured through 2030."
Large-scale CAPEX (facility investment) is also progressing smoothly. LIG Defense&Aerospace in Dec. last year announced a 370 billion won facility investment plan for Gumi House 2. In June this year, it said it would use 500 billion won in industrial funds (preferred shares) from the Public Growth Fund to expand facilities and equipment at Gumi House 3 and Gimcheon House 2.
The mid- to long-term order pipeline is also expanding. In addition to new Cheongung-II buyers in the existing Middle East region, Saudi phase 2, U.S. Bigung, and Middle East L-SAM dual purchases, new pipelines such as Malaysia Haeseong and Indonesia Cheongung-II have been added over the past three months.
Choi said, "We are reviewing a partnership with Indonesia's state-owned PTDI for local joint production, sales, and technical support for Cheongung-II and other PGMs," adding, "The supplier of anti-ship missiles for the Royal Malaysian Navy's littoral combat ship (LCS) will also be decided this month." Choi added, "With the Norwegian government canceling export permits, three systems, including Haeseong, are competing."