[Click eStock] "Hanwha Aerospace, Brilliant in the First Half, Takes a Breather in the Second Half"

Impact of Increased Costs in the Civil Sector... Some Pause Expected in the Second Half
Need to Focus on Growth Story of Space and Satellite Business

[Asia Economy Reporter Minwoo Lee] Hanwha Aerospace, which posted a 'surprise performance' in the first half of the year, is expected to return to a normal profit scale in the second half. This is due to increased costs in the civilian sectors such as Hanwha Techwin, Hanwha Precision Machinery, and Hanwha Power Systems, which achieved record-high profitability. It is anticipated that attention should be paid to whether Hanwha Defense secures overseas orders and the growth of satellite and space businesses in the future.

On the 23rd, Kiwoom Securities maintained its 'Buy' investment rating and target price of 63,000 KRW for Hanwha Aerospace based on this background. The closing price on the previous trading day was 51,100 KRW.

It is forecasted that consolidated sales for the third quarter this year will reach 1.5666 trillion KRW, with an operating profit of 81.6 billion KRW. While sales are expected to show double-digit growth compared to the same period last year, operating profit is projected to decline by 13%. This is also expected to fall short of the market consensus of 89.3 billion KRW. This is interpreted as being due to increased cost factors in the civilian sector, which led the dramatic performance in the first half, combined with the off-season effect of order-based businesses.

Researcher Jisan Kim of Kiwoom Securities explained, "Hanwha Aerospace's civilian long-term supply contract (LTA) performance is gradually recovering along with the trend of aircraft deliveries, and military sales are increasing mainly due to the new high-speed boat (PKX) project. Hanwha Defense is defending its performance with domestic sales such as the K9 upgrade project, and the expectation of resuming overseas orders in Norway, Finland, and Australia remains valid."

However, Hanwha Techwin is expected to continue its strong U.S. B2B (business-to-business) sales trend, but cost factors such as rising semiconductor material costs, logistics expenses, and new model development costs are inevitable. Order-based businesses Hanwha Precision Machinery and Hanwha Power Systems are expected to experience seasonal slowdowns after peaking in the second quarter.

Although the civilian growth momentum that led to a turnaround in performance during the global COVID-19 pandemic phase is weakening, there is an analysis that attention should be paid to whether the defense sector secures overseas orders and the growth of satellite and space businesses in the future.

First, the scheduled launch of the Korean launch vehicle 'Nuriho' next month is crucial. If successful, it will signify securing space transportation capability with domestic technology, and Hanwha Aerospace's launch vehicle engine technology is expected to be highlighted. Hanwha Aerospace supplies a total of six engines for Nuriho.

The satellite business is also drawing attention. Hanwha Systems is continuing its advanced moves in the satellite communication field, including investing in the space internet company OneWeb. It is expected that synergies in satellite and space businesses will materialize in connection with Hanwha Aerospace and Satrec Initiative. Hanwha Defense's major projects such as the Australian Redback armored vehicle and the Saudi and Indian Biho complex are currently stagnant, but they are expected to accelerate once the 'with COVID' phase transitions. Researcher Kim said, "In addition, Hanwha Precision Machinery is diversifying its portfolio with semiconductor back-end process equipment such as flip-chip and die bonding, and Hanwha Power Systems holds sufficient order backlogs mainly in the plant sector, so it is expected to maintain favorable performance."