[Click eStock] "Hanwha Systems in 'Pause,' Secures Multiple Growth Drivers"

Korea Investment & Securities announced on the 21st that it has raised its target price for Hanwha Systems to 43,000 won, an increase of 34.4% from the previous target, stating, "Although performance has entered a brief pause, the company has secured multiple key growth drivers." The firm also maintained its "Buy" investment rating.

On this day, Jang Namhyun, a researcher at Korea Investment & Securities, projected, "Hanwha Systems' consolidated sales for the first quarter will reach 657.7 billion won, up 20.8% year-on-year, and operating profit will increase by 6.7% to 41.9 billion won (operating margin of 6.4%)." Compared to the market consensus, sales are expected to be 3.5% lower and operating profit 5.0% lower.

This target price reflects a 10% discount to the average forward price-to-earnings ratio (PER) of European defense electronics companies for next year's earnings per share (EPS), taking into account that Hanwha Systems' profitability still lags behind the industry average.

Jang noted, "Sales in the information and communications technology (ICT) division are likely to have declined year-on-year," adding, "ICT division sales are estimated to be 152.9 billion won, a decrease of 4.8%." He explained, "The operating loss at Philly Shipyard in the United States, which introduces volatility, and the execution of self-funded defense investment costs will have different impacts." He estimated the operating loss at Philly Shipyard to be 10 billion won and stated that the impact of self-funded defense investment costs will be limited.

For the full year, operating profit is forecast to be 208.2 billion won, a decrease of 5.1% from the previous year, with an operating margin of 5.9%. Jang stated, "Major defense export projects, such as the delivery of the Cheongung II multifunction radar to the Middle East, are progressing smoothly and will contribute to profits."

He further explained, "A decrease in profit due to the consolidation of Philly Shipyard this year is inevitable," citing two reasons: the continued delivery of remaining quantities under loss-making contracts and the potential for various associated costs. The operating loss from Philly Shipyard reflected in the annual results is estimated at around 40 billion won, and he expects Philly Shipyard to turn profitable starting next year.

However, Jang emphasized that Hanwha Systems has secured multiple key growth drivers. He said, "By exporting defense components based on radar and electronic equipment, the company can share in the export-driven growth of domestic defense firms," and added, "Leveraging its competitive edge in SAR (Synthetic Aperture Radar) satellite technology, Hanwha Systems is set to establish itself as a major supplier for military reconnaissance satellite projects." He also highlighted the company's expansion into the warship business, stating, "Having already laid the foundation for U.S. operations through the acquisition of Philly Shipyard, Hanwha Systems is now poised to enter the U.S. naval vessel market."