[Click eStock] "Hanwha, High Earnings Visibility and Renewable Energy Expectations... Target Price Up"

[Asia Economy Reporter Oh Ju-yeon] NH Investment & Securities analyzed on the 16th that Hanwha’s stable defense business contributions through its own defense sector and Hanwha Aerospace have ensured good earnings visibility despite the impact of the novel coronavirus infection (COVID-19), and that opportunities in renewable energy businesses are expanding from solar power to hydrogen vehicles. Accordingly, they maintained a 'Buy' investment rating and raised the target stock price from 32,000 KRW to 37,000 KRW.

Hanwha’s sales in the third quarter of this year decreased by 10% year-on-year to 11.6724 trillion KRW, while operating profit increased by 64% to 636.2 billion KRW, significantly exceeding market consensus.

NH Investment & Securities stated that although the strongest impact came from Hanwha Solutions’ earnings surprise due to the chemical sector’s strength, the separate operating profit (71.2 billion KRW) remained strong due to the base effect in the defense sector. Additionally, following the previous quarter, Hanwha Life’s variable annuity reserve reversal (operating profit of 68.9 billion KRW) due to stock market recovery and Hanwha Aerospace’s strong performance from improved defense sector results led to overall affiliate earnings exceeding expectations. However, Hanwha Construction (43.5 billion KRW) saw profitability decline compared to the previous quarter due to the suspension of housing projects in Iraq caused by COVID-19.

In the fourth quarter, despite weakness from internal trade sector restructuring costs and delays in Hanwha Construction’s Iraq housing projects, operating profit is expected to increase by 206% year-on-year to 351.2 billion KRW, driven by growth in the internal defense sector and balanced earnings growth among listed subsidiaries.

Researcher Kim Dong-yang said, "Despite the impact of COVID-19, Hanwha’s earnings visibility is good due to contributions from its own defense sector and Hanwha Aerospace," and added, "In particular, operating profit from the internal defense sector is expected to grow 67% in 2020 due to the base effect from the 2019 accident and additional deferred sales."

Researcher Kim also added, "With the election of U.S. President Joe Biden, who emphasizes eco-friendly investments, acceleration of renewable energy expansion in the U.S. is expected, including Hanwha Solutions’ solar power business, Hanwha Energy and Hanwha General Chemical?affiliates of H Solution?Nikola equity investment, and potential opportunities in hydrogen power generation for transportation."