[Click eStock] EM Korea, Defense Export Growth "Accelerating Earnings Turnaround Next Year"

[Asia Economy Reporter Lee Seon-ae] Hi Investment & Securities forecasted that EM Korea's performance next year could accelerate its turnaround. On the 5th, Lee Sang-heon, a researcher at Hi Investment & Securities, stated, "So far, EM Korea's performance has been poor due to the low operating rate of food waste treatment plants and poor subsidiary performance. However, starting next year, as the operating rate rises and the subsidiaries' losses decrease, combined with increased sales in the defense and aerospace sectors, the performance turnaround could accelerate."

EM Korea, established in 2003, operates in business sectors including machine tools, defense and aerospace, power generation equipment, and TBM. Its subsidiary, EM Solution, is engaged in energy and environmental businesses such as hydrogen energy stations, food waste treatment plant systems, and Ballast Water Treatment Systems (BWTS). As of the first half of this year, the sales composition is Defense and Aerospace 50.5%, Machine Tools 36.0%, Power Generation and ITER 7.2%, Energy 5.5%, TBM 0.3%, and Others 0.5%.

In the defense and land sector, EM Korea produces components such as the firing mechanism assembly, cylinder assembly, axle arm, and cradle assembly for the K-9 self-propelled howitzer; ammunition box structures for the K-10 ammunition carrier; rotors and firing devices for the K-2 tank; replacement gun barrels for the K-1 tank; and air purifiers, slip rings, and firing systems for the K-21 next-generation infantry fighting vehicle. Additionally, the company is expanding its business scope from single-part production to sub-assembly of wheeled armored vehicles.

Moreover, in the defense and aerospace sector, EM Korea manufactures hydraulic accumulators, manifolds, uplock boxes, ammunition storage system parts, landing gear parts, and door actuator parts for the T-50 advanced trainer. For the Korean helicopter Surion, it produces nitrogen generators, jet pumps, solenoids, landing gear parts, and control components. The company has also been selected as a core parts developer for the Korean fighter jet and Korean light attack helicopter development projects, with prototype development of applied products underway.

Additionally, EM Korea produces test systems and difficult-to-machine parts related to the defense and aerospace sector. Sales in the defense and aerospace sector were 31.1 billion KRW in 2017, 39.1 billion KRW in 2018, 32.0 billion KRW in 2019, 36.4 billion KRW in 2020, 40.7 billion KRW in 2021, and 23.6 billion KRW in the first half of 2022. Since last year, sales have been increasing steadily due to rising sales of mass-produced parts.

Meanwhile, on July 27, the Polish government signed a basic contract with Hyundai Rotem, Hanwha Defense, Korea Aerospace Industries (KAI), and others for the introduction of Korean weapon systems such as the K2 tank, K9 self-propelled howitzer, and FA-50 light attack aircraft. The contract is estimated to cover 1,000 K2 tanks, 672 K9 self-propelled howitzers, and 48 FA-50 light attack aircraft. As an implementation contract, the first main contract was signed on August 26 for 180 K2 tanks and 212 K9 self-propelled howitzers, worth approximately 7.7 trillion KRW. Korea Aerospace Industries (KAI) is also scheduled to sign an implementation contract in September. Importantly, with export potential expanding not only to Poland but also to several other countries, demand for parts for these defense products is expected to increase.

The researcher concluded, "As defense exports expand alongside domestic demand, parts sales for the company's defense products will increase, accelerating growth and contributing to profitability improvement."