[Click eStock] "Defense Stocks Securing Overseas Export Routes, Expecting Benefits for LIG"

Daishin Securities Report

On the 19th, a model of the Korean Low Altitude Missile Defense (LAMD) system was displayed at the LIG Nex1 booth at the 'Seoul International Aerospace and Defense Exhibition 2021 (Seoul ADEX 2021)' held at Seoul Airport in Seongnam, Gyeonggi Province. Photo by Jinhyung Kang, Seongnam aymsdream@

[Asia Economy Reporter Minji Lee] Opinions have emerged that the performance of major defense companies is expected to improve in relation to the announcement of purchase plans for domestic weapons imports by overseas countries.

On the 18th, Daishin Securities explained, "The proportion of weapon systems that are localized and exported is increasing significantly," adding, "Imported weapon systems have many restrictions on subsequent exports, but when weapon systems are localized, it is possible to respond flexibly to the needs of the exporting country."

Domestic defense companies have been accelerating the localization of weapon systems since the early 2000s. Exports began in earnest in the 2010s, and major defense companies such as Korea Aerospace Industries, LIG Nex1, Hanwha Aerospace, and Hanwha Systems were listed, forming an investment group. After a sharp decline due to political issues in 2017, the market has stabilized.

The strategy of domestic defense companies is to add advanced domestic IT technology to the outdated weapon systems of advanced countries, creating a structure that gains a competitive edge over the old weapon systems of advanced countries. The domestic defense budget is 52 trillion won annually, which is also attractive because development costs can be covered based on domestic basic demand. Researcher Taehwa Lee of Daishin Securities said, "From the importer's perspective, it is possible to purchase the latest weapon systems at reasonable prices, and most of the weapons currently being exported are systems needed by many countries, so exports are expected to continue to increase."

Currently, the export ratio of domestic defense companies is about 5-10% of sales. Major export items include Korea Aerospace Industries' trainer (light attack aircraft), Hanwha Aerospace (Hanwha Defense)'s K9 self-propelled howitzer and armored vehicles, LIG Nex1's guided weapons, and Hanwha Systems' combat and communication systems. In 2022, Hanwha Aerospace's Australia LAND 400 project (5 trillion won) and LIG Nex1's exports are also expected. Researcher Taehwa Lee added, "Overall benefits to defense stocks are expected," and "LIG Nex1, which is expected to have the largest increase in performance, is the top pick, and Hanwha Aerospace is also worth attention."