[Click eStock] "Defense Industry Reaffirms Middle East Demand with Cheongung II Orders... Peak-Out Is Far"

LIG Nex1 Signs 3.7 Trillion Won Contract with Iraq
Positive Signal for Expansion of Export Destinations by Domestic Defense Companies
Growing Trust in Domestic Weapon Systems

Meritz Securities analyzed on the 23rd that the recent export of LIG Nex1's Cheongung II missile is positively evaluated in the defense industry, and the expansion of export countries by domestic defense companies is acting as a positive signal.

Jiho Lee, a researcher at Meritz Securities, said, "This export of Cheongung II by LIG Nex1 is a large-scale contract about two months after Hanwha Aerospace's K9 order for Romania," adding, "The expansion of export countries and portfolio diversification by domestic defense companies are acting as positive signals." He also noted that concerns about a peak-out are premature given the still high global demand for weapons.

On the 20th, LIG Nex1 announced an order for Cheongung II missiles for Iraq, confirming its third export contract in the Middle East market. The order is estimated to be for a total of 8 batteries, with a contract size reaching approximately 3.7 trillion KRW. The unit price per battery is around 350 million USD, similar to the contract prices in the United Arab Emirates (UAE) and Saudi Arabia. The Middle East Cheongung II performance is expected to be reflected starting from the end of 2025 when sales to the UAE begin in earnest, and considering the delivery schedule to Saudi Arabia, steady performance growth is projected until 2030.

Iraq's decision on this order is analyzed to be due to difficulties in maintaining and servicing existing Russian-made equipment, issues with the U.S. Countering America's Adversaries Through Sanctions Act (CAATSA) sanctions when importing Iranian and Russian weapons, and relatively low prices. This has proven the establishment of air defense network references within the Middle East region, and additional exports and expansion effects to L-SAM are expected in the mid to long term.

The researcher said, "This order for Iraq is also expected to have a positive impact on Hanwha Systems and Hanwha Aerospace," explaining, "About 30% of the existing orders for UAE and Saudi Arabia were generated from Hanwha Systems' MFR radar, and 10% from Hanwha Aerospace's launchers." Therefore, this Cheongung II export is expected to bring an actual order backlog increase effect of about 2.2 trillion KRW for LIG Nex1, about 1.1 trillion KRW for Hanwha Systems, and about 370 billion KRW for Hanwha Aerospace.

As export countries continue to be secured in the Middle East region centered on LIG Nex1, trust in domestically produced weapon systems is also rising. With the localization of the powerpack for the K2 tank completed and the engine for the K9 self-propelled howitzer expected to be localized, positive prospects for future export volumes are being raised. It is currently analyzed that there is potential demand due to the aging of tanks, self-propelled howitzers, and armored vehicles in the Middle East region, which is expected to contribute to the expansion of mid- to long-term export items based on domestic weapon references.