[Click eStock] "Hanwha Aero Must Secure Rights Offering Justification Through New Orders"

Target Price Lowered from 810,000 KRW to 730,000 KRW

On the 24th, LS Securities downgraded the target price of Hanwha Aerospace from 810,000 KRW to 730,000 KRW, stating that the uncertainty over whether the funds raised through the rights offering would translate into performance had not been resolved. The investment rating was maintained at 'Buy.'

Earlier, Hanwha Aerospace (hereinafter Hanwha Aero) announced a rights offering worth 3.6 trillion KRW after the market closed on the 20th, causing its stock price to plunge about 13% the following day. The number of newly issued shares accounts for approximately 13% of the circulating shares, with the record date for new share allocation set for the 24th of next month and the expected listing date on June 24. The detailed breakdown of fund usage is estimated as 1.2 trillion KRW (33.3%) for domestic facility construction, 1 trillion KRW (27.8%) for overseas facility construction, 600 billion KRW (16.7%) for overseas JV (joint venture) equity investment, and 800 billion KRW (22.2%) for overseas shipyard equity investment.

Researcher Choi Jeong-hwan of LS Securities explained, "Although the investment was necessary, it is very regrettable that the funds were raised through a rights offering rather than internal cash flow, liquidation of liquid assets, or bond issuance." He added, "We believe this occurred because the company's cash flow could not keep up with the rapidly changing defense industry environment following acquisitions such as Hanwha Ocean and Dynamac." In response to shareholder criticism, Kim Dong-kwan, Vice Chairman of Hanwha Group, has announced plans to purchase approximately 3 billion KRW worth of Hanwha Aero shares.

Researcher Choi stated, "Short-term shareholder value dilution is inevitable due to the increase in circulating shares, and uncertainty remains over whether the funds raised through the rights offering will translate into performance. However, the purpose of the rights offering itself is in the right direction." He emphasized, "Using local bases, the company must secure legitimacy for the rights offering not merely by signing contracts for existing export countries such as Poland and Saudi Arabia, but by concluding new contracts in Eastern Europe, Northern Europe, and new countries in the Middle East, including system contracts."