[Click eStock] Hanwha Aerospace, Civil Demand Momentum Expected... Target Price Raised

[Asia Economy Reporter Lee Seon-ae] Kiwoom Securities announced on the 19th that it maintains a 'Buy' rating on Hanwha Aerospace and raises the target price from 53,000 KRW to 63,000 KRW. This is based on the analysis that the momentum in the civilian sector is exceeding expectations.

The operating profit for the second quarter is expected to be 96.4 billion KRW (QoQ 46%, YoY 37%), significantly surpassing the market consensus of 81.3 billion KRW, continuing a streak of surprise strong earnings. The civilian sectors such as Precision Machinery, Techwin, and Power Systems are expected to maintain dramatic momentum. They are benefiting greatly from the global expansion of capital investment.

Precision Machinery is expected to continue strong demand for IT chip mounters, including LED, home appliances, and PCs, mainly in China, with the added effect of the peak season. The competitive landscape is limited, which is reflected in high profitability. Techwin is seeing steady B2B demand in North America, and its market share is rising in Europe due to the shrinking presence of Chinese competitors. Cost efficiency achievements during the COVID-19 environment are supporting this. Power Systems has secured sufficient order backlogs across shipbuilding, petrochemicals, and EPC sectors. As sales delays ease, it will enter a full-fledged growth phase. In Aerospace, the LTA division, which experienced temporary cost issues last quarter, is improving its product mix focusing on high-value GENX engine parts, and the defense sector will see increased sales with the start of the KDX-III destroyer project. This will bring the company's overall profitability close to the break-even point.

Kiwoom Securities analyst Kim Ji-san said, "In the second half, the defense sector will lead the trend of earnings improvement as it recovers in earnest. Aerospace will see new sales from the destroyer (KDX-III) project along with the new high-speed patrol boat (PKX) engine module, and as the year progresses, global aircraft deliveries will increase, creating a favorable environment for engine parts."

Defense is expected to see seasonal recovery mainly in the domestic market. Attention should be paid to whether overseas orders, including the Saudi Biho complex, will resume. Along with its subsidiary Hanwha Systems, the company’s leading efforts in the Urban Air Mobility (UAM) sector will positively impact corporate value. Aerospace plans to commercialize the electric actuator (EMA), a core driving device for future personal air vehicles (PAV).