[Click eStock] "Pungsan, Defense Stocks Expected to Benefit from Strength... New Buy Recommendation"

Defense Stocks Rally on Mercury Law Revision, Positive Impact on Poongsan
Rising Copper Prices Also Boost Earnings Expectations
One-Time Profit from Disposal of Busan Facility

On the 7th, SK Securities analyzed that Pungsan's stock price has a high potential for increase due to the strong performance of defense stocks and expectations of a rebound in copper prices. Accordingly, they newly issued a 'Buy' investment opinion and a target price of 63,000 KRW. Pungsan closed at 44,450 KRW on the previous trading day.

Lee Gyu-ik, a researcher at SK Securities, stated, "Recently, defense stocks have shown strong performance due to expectations of increased orders following the amendment of the Korea Export-Import Bank Act (Korea Eximbank Act), and Pungsan's stock price has risen 14.6% since the passage of the Korea Eximbank Act amendment bill in the subcommittee." He added, "We expect the stock price increase to be even greater after actual order contracts, and if copper prices show a rebound in the second half of the year, achieving the target price is fully possible."

Recently, the National Assembly passed an amendment bill aimed at raising the statutory capital of Korea Eximbank from the current 15 trillion KRW to 25 trillion KRW. There had been concerns that the capital limit was hindering the expansion of defense exports. Korea Eximbank can provide financial support to importing countries within 40% of its statutory capital (6 trillion KRW), but most of this amount was exhausted during the first export contract to Poland. With the amendment bill passing the National Assembly, an additional 4 trillion KRW in credit provision has become possible, easing the bottleneck in defense exports.

Researcher Lee said, "Due to the prolonged Russia-Ukraine war, there is an extreme shortage of 155mm shells, and production is currently operating at maximum capacity." He added, "To address the shell shortage, there are plans to double the production capacity of 155mm shells over the next two years, and considering recent order trends, it is highly likely that this production capacity level will be maintained for at least 2-3 years." If the production line expansion is completed, it is expected to add annual sales of 250 billion KRW and operating profit of 50-60 billion KRW.

Furthermore, the expected rise in copper prices in the second half of the year is also anticipated to benefit Pungsan. Researcher Lee stated, "Due to China's monetary and fiscal support measures, further deterioration of the Chinese economy is considered limited." He continued, "Although the timing of U.S. interest rate cuts has been delayed, the rise in the dollar index is also limited. If there is no further decline in copper prices, earnings are expected to improve from the first quarter." Additionally, it is expected that a one-time gain of over 600 billion KRW from the disposal of the Busan business site will also contribute to enhancing corporate value.