[Click eStock] "Korea Aerospace Industries Expected Strong Earnings... Target Price Maintained"

Shinhan Investment Corp. maintained a buy rating and a target price of 72,000 KRW on Korea Aerospace Industries on the 3rd, stating that "strong performance driven by exports to Poland in the fourth quarter of last year is expected." The closing price on the previous day was 51,300 KRW.

A formation of domestic fighter jets FA-50 is flying overhead. [Image source=Yonhap News]

Lee Dong-heon, a researcher at Shinhan Investment Corp., said, "Sales in the fourth quarter of last year are expected to reach 1.3482 trillion KRW, a 55% increase compared to the same period last year, and operating profit is expected to increase by 265% to 136.9 billion KRW," adding, "Although sales are 4% below market expectations, operating profit exceeds expectations by 12%, representing strong performance. This marks a reversal from the results that had consistently fallen short of market forecasts last year."

Regarding sales, the Polish FA-50 (8 units) were properly recognized, and domestic volume is also in peak season. Partial recovery of airframe parts, the announced extension of delivery for the Thailand T-50TH, and the Iraq base reconstruction project are considered variables. The researcher stated, "The Polish FA-50 is expected to have margins at least exceeding those of the third quarter of last year. Although the Iraq base reconstruction and increased domestic development costs are burdens, sales growth and export expansion will drive strong performance. Airframe parts are also showing improvement."

With the second batch production of small armed helicopters at the end of the year (1.4 trillion KRW), development of parts for utility helicopters (188.9 billion KRW), and performance improvement projects for airborne communication radios (349.5 billion KRW) pouring in, this year's orders are estimated to be close to the target of 4.5 trillion KRW. The researcher evaluated, "Last year, there were no overseas orders except for 18 Malaysian FA-50s (1.2 trillion KRW), but this year, orders from at least three countries are expected. The first export of Surion is also within sight. In addition, including the mass production contract for the domestic KF-21 (around 2 trillion KRW), annual orders of around 5 to 6 trillion KRW seem achievable without difficulty."

He added, "Although there were concerns about the reduction in the initial mass production scale of the KF-21, the overall scale of deployment (120 units) and the final deployment framework have not changed. Despite the impact of reduced sales recognition of the Polish FA-50 this year, the order backlog is still on an upward trend," and “performance growth is expected to accelerate from next year. One-time costs will decrease this year. The U.S. trainer aircraft project will resume, and margins on airframe parts will recover. Furthermore, the KF-21 mass production project will be in full swing, resolving factors that had suppressed the stock price. The diversification of export countries and the relatively stagnant stock price also add to its attractiveness.”