"K-Defense Industry, Stock Price and Earnings Expected to Rise with Tens of Trillions Won in Orders"

Possibility of Securing Orders Worth 8 Trillion Won by Early Next Year

[Asia Economy Reporter Minji Lee] Korea Investment & Securities forecasted on the 7th that domestic defense companies are gaining prominence in the global market, raising expectations for stock price increases due to large-scale orders.

The Ministry of Defense of the United Arab Emirates announced its intention to introduce the Cheongung 2 system worth 4 trillion won. In 2015, the Cheongung 1, designed for aircraft interception, was mass-produced and deployed in actual combat. The highly advanced Cheongung 2, which defends against ballistic missiles, was developed by the Agency for Defense Development (ADD) starting in 2012, received combat suitability certification in 2016, began mass production in 2018, and the first battery was just deployed in November this year.

Researcher Kwangsik Choi of Korea Investment & Securities said, “Although this weapon system was just deployed in Korea, an overseas supply contract larger than the seven domestic production batteries was signed,” adding, “While external factors such as Russia’s exclusion and the gap in weapon systems at the M-SAM level in the U.S. aligned, the main success factors were the advancement of Korean weapon systems and the efforts of the government, ADD, and the defense industry.”

The Cheongung 2 order is increasing the possibility of large-scale orders for domestic defense companies in the future. Currently, Hanwha Defense is forming a project to introduce self-propelled artillery in Egypt and has been selected as the sole supplier for Australia’s self-propelled artillery acquisition project, with contracts nearing completion. Additionally, Hanwha Defense’s Redback is in the final competition with Rheinmetall for Australia’s next-generation armored vehicle replacement project, and Korea Aerospace Industries (KAI)’s FA-50 is participating in Malaysia’s light combat aircraft replacement project.

Researcher Kwangsik Choi analyzed, “The Lockheed Martin-KAI team, which faced setbacks in the 2018 U.S. advanced trainer aircraft acquisition project, now has an opportunity in the U.S. tactical introduction trainer project,” adding, “An unprecedented scale of order opportunities has been created, and trillion-won contracts are expected to continue.”

Looking at the projects known to have bids so far, orders worth about 8 trillion won are expected from the end of this year to early next year. If all expected projects through 2025 are secured, it is predicted that an order backlog of 30 to 40 trillion won can be achieved. Researcher Kwangsik Choi said, “While domestic weapon system supply can only expect operating profit margins in the mid-to-high single digits, exports have higher profit margins,” adding, “Defense companies are transforming into growth stocks as export industries.”