Operating profit at Korea's major defense companies is expected to exceed 6.3 trillion won this year. The figure is based on estimates compiled from major securities firms. That would be an increase of more than 35% from last year, driven by various accumulated weapons orders increasingly reflected in results toward the second half. They plan to secure long-term growth momentum by breaking through regional protectionism through cooperation with global defense companies and pursuing "arms hunting" as countries worldwide expand their defense budgets.
According to data compiled by FnGuide on the 24th from performance estimates projected by securities firms over the past three months, second-quarter operating profit for the four major domestic defense companies—Hanwha Aerospace, Hyundai Rotem, Korea Aerospace Industries (KAI), and LIG Defense & Aerospace (D&A)—is estimated to total 1.5026 trillion won.
This is an increase of 16.9% from the same period a year earlier. Widening the lens to a full-year time series, the growth margin expands further. The four companies' operating profit outlook for this year totals 6.3433 trillion won, up 35.4% from last year.
Hanwha Aerospace, the flagship defense stock, accounts for more than half of this. Hanwha Aerospace alone is expected to post operating profit of 1.0224 trillion won in the second quarter, up 18.3% from a year earlier. This is the first time Hanwha Aerospace's quarterly operating profit will exceed 1 trillion won. In the first quarter, operating profit rose 20.6% to 638.9 billion won but missed market expectations. With growth set to accelerate in the second quarter, Hanwha Aerospace's annual operating profit is forecast to reach 4.2599 trillion won, up 37.9%.
KAI's growth is projected to be even steeper. Second-quarter and full-year operating profit are expected to rise 22.7% and 75.9% to 104.5 billion won and 473.6 billion won, respectively. LIG D&A is also forecast to report second-quarter operating profit up 36.0% to 105.5 billion won, with full-year operating profit rising 41.3% to 451.3 billion won. Hyundai Rotem's second-quarter operating profit is expected to edge up 4.9% to 270.2 billion won, but its full-year operating profit is projected to log double-digit growth of 15.2%.
All four defense companies are set to see scheduled orders increasingly reflected in results toward the second half. Hanwha Aerospace is expected to book sales in the second half from K9 self-propelled howitzers and Cheonmu multiple rocket launchers delivered to Poland. Chae Un-saem, a Hana Securities researcher, said, "Last year, most of defense export revenue came from Poland, but starting this year, recognition of results from non-Poland volumes such as Egypt and Australia is also expected to increase significantly."
KAI is set to complete system development of the KF-21 in the first half and begin mass production in the second half. LS Securities estimated KF-21 revenue at about 1.1 trillion won. Lee Jae-gwang, a researcher at LS Securities, said, "Revenue related to the (next-generation light armed helicopter) Mi-ron will increase about 203% to about 730 billion won due to a rise in units delivered, and export progress for FA-50 fighter jets to Poland and Malaysia will also increase, pushing revenue to 1.4 trillion won, up 50%." In addition, LIG D&A is set to complete delivery of a third battery of Cheongung II to the United Arab Emirates (UAE).
Analysts say long-term growth momentum has also been secured as cooperation with global defense companies expands. LIG D&A recently agreed to jointly build a multilayer air defense network, a "European Iron Dome," by establishing a European joint venture (JV) with German defense company Rheinmetall Air Defence. Hanwha Aerospace is cooperating with Northrop Grumman in the United States on long-range missile system development and with Thales in France on localization of guided munitions for the Cheonmu multiple rocket launcher.
As global defense spending steadily rises due to various wars, export opportunities are also expected to expand for domestic defense companies partnering with local firms. Yang Seung-yoon, a researcher at Eugene Investment & Securities, said, "Advancing beyond overseas local production to the stage of global joint development is a factor that raises expectations for additional revenue by entering advanced markets and expanding market share," adding, "The end of growth for Korean defense is not yet in sight."