Korea Aerospace Industries (KAI) is expected to see its earnings improve rapidly through mass production and exports of the homegrown supersonic fighter KF-21. As Hanwha and other corporations have recently moved to acquire KAI, there is an outlook that its "price tag" will rise further.
According to the defense industry on the 15th, KAI is in final-stage talks to export 16 KF-21s to Indonesia. The exact amount has not been disclosed, but it is expected to reach the multi-trillion-won range. The industry expects that Indonesia will announce its import of the KF-21 within this year at the latest, and that it will sign for additional units once deliveries are completed.
With the mass production of the KF-21 as a catalyst, there is an outlook that KAI's previously subdued earnings will take off. Last year, KAI's operating profit rose only 11.8% year over year, showing weaker growth than major defense companies such as Hanwha Aerospace (78.4%), Hyundai Rotem (120.3%), and LIG Defense&Aerospace (LIG D&A·43.0%).
In the first quarter of this year as well, KAI's operating profit was 67.1 billion won, the only one among the four defense firms not to exceed the 100 billion won range.
Lee Sang-hyun, an analyst at BNK Investment & Securities, said, "KAI is expected to see margin expansion from an improved business mix as domestic mass-production deliveries of the KF-21 begin in the second half." KAI plans to deliver a total of 40 KF-21s to the Air Force in two batches starting this year. The value is 4.3 trillion won.
KAI President Kim Jong-chul also said on the 13th, "The volumes currently under export consultation for the KF-21 exceed 200 units," adding, "We will focus on diversifying export destinations and country-specific marketing." In fact, along with Indonesia, the Philippines, Malaysia, and Poland are also known to be showing interest in importing the KF-21.
The analyst also projected, "Exports of completed aircraft will see percentage-of-completion revenue for deliveries to Poland next year expand gradually in the second half, and deliveries of FA-50 fighters to Malaysia are scheduled to begin in the fourth quarter." Choi Jong-kyung, head of corporate analysis at Heungkuk Securities, said, "Sequential order wins are also expected for major programs in the United Arab Emirates (UAE) and Saudi Arabia."
According to financial data firm FnGuide, KAI's operating profit consensus (average estimate) for this year is 476.8 billion won, up about 80% year over year.
Meanwhile, KAI has emerged as the "eye of the storm" in the domestic defense industry's restructuring, with the possibility of an acquisition by Hanwha Group recently floated. Hanwha Aerospace recently secured a 5.09% equity stake in KAI and said it plans to increase its stake to about 8% by year-end.
In the defense industry, there is an interpretation that Hanwha signaled interest in acquiring KAI to build an integrated "land, sea, air, and space" portfolio. An industry official said, "If Hanwha and KAI merge, not only related business opportunities but also partner firms would all be drawn to Hanwha, which could cause major waves in the industry."
In addition to Hanwha, Hyundai Motor Group and LIG D&A, as well as Korean Air Lines and HD Hyundai Heavy Industries, which took part in the 2012 bidding war for KAI, are also being mentioned as potential acquisition candidates.