[Click eStock] "Hanwha Aerospace, Synergy Expected Among Subsidiaries"

Synergy Expected Not Only in Aerospace Development but Also in Defense, Surveillance Equipment, and Hydrogen Value Chain
Stable Defense Industry Base Anticipates Favorable Performance

[Asia Economy Reporter Gong Byung-sun] An analysis has emerged that a subsidiary of Hanwha Aerospace is expected to generate synergy effects this year while also showing growth. Synergy effects are anticipated not only in the recently spotlighted aerospace development sector but also in the defense, surveillance equipment, and hydrogen value chain sectors. Accordingly, NH Investment & Securities raised the target price of Hanwha Aerospace from 35,500 KRW to 50,000 KRW by applying a sum-of-the-parts (SOTP) valuation method, expecting solid performance. The investment opinion was maintained as ‘Buy.’

Hanwha Aerospace is expected to build synergy effects by securing a portfolio in the aerospace development field. Hanwha Aerospace’s subsidiary, Hanwha Systems, is a specialized developer of electronic equipment, radar, and communication devices used in satellites and Urban Air Mobility (UAM). Setrec Eye, which received investment from Hanwha Aerospace, is a specialized developer of low Earth orbit satellites. Choi Jin-myung, a researcher at NH Investment & Securities, said, “If synergy occurs among subsidiaries, growth will accelerate.”

Synergy effects are also expected in the defense, surveillance equipment, and hydrogen value chain sectors. The self-propelled artillery and armored vehicles manufactured by Hanwha Defense incorporate electronic equipment made by Hanwha Systems. Advanced surveillance equipment combining Hanwha Techwin’s closed-circuit television (CCTV) technology with Hanwha Systems’ infrared detection devices and radar technology is frequently seen at military exhibitions. Gas compressors necessary for handling hydrogen fuel used in the UAM introduction process are being supplied by Hanwha Power Systems.

Accordingly, along with predictions that the defense industry will remain stable this year, Hanwha Aerospace is also expected to post solid performance. Researcher Choi explained, “Hanwha Aerospace’s sales this year are expected to reach 5.866 trillion KRW, a 10.2% increase compared to the same period last year, and operating profit is expected to record 299 billion KRW. In particular, profitability improvements will be clear in Hanwha Systems, Hanwha Techwin, Hanwha Power Systems, and Hanwha Precision Machinery.”

NH Investment & Securities applied the SOTP valuation method and raised the target price to 50,000 KRW. Considering Hanwha Aerospace’s business structure and the listing of its subsidiaries, NH Investment & Securities judged that switching from the existing price-earnings ratio (PER multiple) valuation method to SOTP is appropriate. Researcher Choi said, “Hanwha Aerospace’s discount rate is 47%, indicating undervaluation. By applying SOTP, the complex subsidiary structure, stock price changes of listed subsidiaries, and added value from the joint development project of the GTF (Gear TurboFan) engine with Pratt & Whitney will be reflected more precisely.”