[Into the Stock] Korea's Launch Vehicle 'Nuriho' Ready for Launch... Will Hanwha Aerospace Also Take Off Together?

Nuriho Scheduled for Launch on October 21 with Six Engines Made by Hanwha Aerospace
Immediate Profitability in Space Business Unlikely, but Positive Growth Expected in Civil Sector

[Asia Economy Reporter Gong Byung-sun] The Korean-type launch vehicle ‘Nuriho’ is ready to fly. According to the Ministry of Science and ICT on the 6th, Nuriho has completed the Wet Dress Rehearsal (WDR) and has begun full-scale launch preparations. WDR refers to the process of placing the flight model on the launch pad and charging and discharging the oxidizer at minus 183°C to determine whether the launch mission can be performed. According to the plan, Nuriho is scheduled to be launched into space on October 21.

Until the successful launch of Naroho in 2013, domestic space launch vehicles relied on Russian technology. However, Nuriho is a launch vehicle made purely with Korean technology. Hanwha Aerospace manufactured a total of six engines: five 75-ton class engines used in the first and second stages, and one 7-ton class engine used in the third stage. This marks the seventh time worldwide that a 75-ton class engine has been developed and produced successfully.

The stock price also reacted to this news. After announcing the WDR on the 26th of last month, the stock price rose for three consecutive trading days, surpassing the 50,000 won mark. Over the three days, the stock price increased by 6.15%. As of 10:21 a.m. on the day, Hanwha Aerospace recorded a slight decline of 0.39% (200 won), standing at 51,000 won.

Space Business Challenged for a Long Time... Becoming More Concrete

Hanwha Aerospace’s space business has been becoming more concrete for a long time. Starting as Samsung Precision Industry Co., Ltd. in 1977, Hanwha Aerospace actively participated in the space launch vehicle business, including the Scientific Observation Rocket No. 3 in 1999. It also took part in the Naroho project, developing the thrust vector control drive system for the second stage launch vehicle purely with Korean technology. Thrust vector control refers to a system that controls the attitude of the launch vehicle so that it can follow the planned flight path.

Bold investments are expected to continue. On January 13, Hanwha Aerospace announced that it acquired 20% of the issued shares of satellite system developer and manufacturer Satrec Initiative for about 59 billion won and invested 50 billion won in convertible bonds, securing approximately 30% equity. Subsequently, Hanwha Aerospace became the largest shareholder of Satrec Initiative through a third-party allotment paid-in capital increase.

Founded in 1999, Satrec Initiative is the only private satellite manufacturer and exporter in Korea. Its main customers include Malaysia and the United Arab Emirates (UAE). In 2013, Satrec Initiative exported ‘DubaiSat-2’ to the UAE, capable of identifying objects on the ground measuring 1m by 1m from an altitude of 600 km. On the 18th of last month, Satrec Initiative announced the development of the world’s highest resolution commercial earth observation satellite ‘SpaceEye-T.’ This is also the first strategic space business with Hanwha.

Additionally, Hanwha affiliates are supporting the new space business together. In June, Hanwha Aerospace participated in Hanwha Systems’ paid-in capital increase worth 1.2 trillion won. Since March this year, Hanwha Systems, Hanwha Aerospace, and Satrec Initiative have belonged to the Space Hub, which oversees Hanwha’s space industry. The paid-in capital increase has strengthened their cooperation. On the 12th of last month, Hanwha Systems invested 300 million dollars (about 347.3 billion won) in the space internet company OneWeb, preparing growth momentum.

Profitability of Space Business Not Guaranteed Yet... Strong Growth in Civilian Sector

There are concerns. The profitability of the space business is not guaranteed immediately. The securities industry predicts that it will take at least 10 years to see returns from the space business. However, contrary to concerns, Hanwha Aerospace’s performance is favorable.

Hanwha Aerospace’s sales in the second quarter of this year increased by 41% year-on-year to 1.69 trillion won, and operating profit rose by 89% to 132.6 billion won during the same period. Except for the defense sector, where orders were delayed due to COVID-19, all sectors showed improved performance.

(Provided by Daishin Securities)

In particular, the civilian sector shows clear growth. The general machinery sector, including Hanwha Techwin’s closed-circuit television (CCTV), Hanwha Precision Machinery’s chip mounter, and Hanwha Power System’s combined turbine, delivered earnings surprises. Choi Jin-myung, a researcher at NH Investment & Securities, explained, “If the growth trend in the civilian sector continues, the corporate value of these subsidiaries will exceed one-third of the total,” adding, “The civilian sector is emerging as a cash cow for Hanwha Aerospace.” In fact, sales from Hanwha Techwin, Hanwha Precision Machinery, and Hanwha Power System accounted for about 22% of the total in the second quarter of last year but increased to about 28% in the second quarter of this year.

However, as the company continues to show good performance, there are concerns about peak-out (passing the high point). Operating profit in the third quarter of last year was 94.3 billion won, the highest quarterly figure that year. Also, operating profit in the second quarter of this year reached 132.6 billion won, an 89% increase year-on-year. Lee Dong-heon, a researcher at Daishin Securities, said, “Cost burdens will increase from the second half of the year,” adding, “Because of the base effect from the third quarter of last year, both year-on-year and quarter-on-quarter comparisons show a decline in profit.”