Rise of Korean Defense

Thanks to expanded exports to Poland and the Middle East, Orders already scheduled exceed KRW 100 trillion.

Establishing overseas local production and supply chains

The four major domestic defense companies are expected to post combined operating profits of more than KRW 1.5 trillion in the second quarter of this year, setting a new quarterly record.
According to financial data provider FnGuide, operating profit consensus for the second quarter of this year for Hanwha Aerospace, Hyundai Rotem, Korean Aerospace Industries (KAI) and LIG D&A totaled KRW 1.5026 trillion. That is an increase of 11.7% from the same period last year.
Sales are also expected to return to the KRW 10 trillion range. The defense industry’s Big 4 first surpassed KRW 10 trillion in combined sales in the fourth quarter of last year, when sales reached KRW 12.9183 trillion, but slowed to KRW 9.4691 trillion in the first quarter of this year. A revenue consensus for the second half stands at KRW 11.298 trillion.

The performance of Hanwha Aerospace stands out the most. Its second-quarter operating profit is projected at KRW 1.0224, raising expectations that it will surpass KRW 1 trillion in quarterly operating profit. As revenue recognition for export business to Europe, including Poland, expands, business in Egypt and Australia is also expected to contribute to earnings.
Hyundai Rotem is expected to post second-quarter operating profit of KRW 270.2 billion, a 4.9 increase from a year earlier. Despite the burden of the significant performance boost from last year’s exports of K2 tanks to Poland, the company appears to be maintaining stable profitability.
KAI’s second-quarter operating profit is forecast to rise by 22.6% to KRW 104.5 billion. This is attributed to the delivery of T-50i training fighter planes to Indonesia, and a recovery in the civilian aircraft components business.
LIG D&A is expected to record the highest growth rate among the four major defense companies in the second quarter, with operating profit increasing by 36% to KRW 105.5 billion. Demand for the UAE Cheongung-II (medium-range surface-to-air missile) project and air defense systems in the Middle East is also continuing.
Visibility on future earnings is also considered strong. As of the first quarter of this year, the combined order backlog of the four companies exceeded KRW 100 trillion, meaning they have secured a stable production base for several years based solely on the work already obtained.

 
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