[Click e-Stock] "Hanwha Systems, Middle East Export Contracts to Accelerate... Target Price Up"

Target Price Raised by 29% Compared to Previous Estimate

On June 26, NH Investment & Securities raised its target price for Hanwha Systems from 53,000 won to 68,500 won, anticipating an acceleration in export contracts to the Middle East. The investment opinion remains 'Buy'.

Lee Jaekwang, an analyst at NH Investment & Securities, stated, "We are raising our target price by 29% compared to the previous figure," and explained, "This is due to the expectation that ongoing negotiations for weapons system contracts with Middle Eastern countries will accelerate as security threats in the region rise. As a result, we have raised the valuation multiple (EV/EBITDA) applied to the defense sector from the previous 15 times to 20 times, which is the average for European defense companies."

In particular, orders for surface-to-air defense systems (Cheongung-II and L-SAM) are anticipated. Hanwha Systems manufactures the multi-function radar for these systems. Lee analyzed, "If Hanwha Systems wins orders for 10 Cheongung-II batteries, the total contract value is expected to be about 1 trillion won. In addition, orders for the K2 tank are also expected, as Hanwha Systems manufactures the fire control system for the K2 tank. The price per unit is estimated to be about 1.5 billion won." He added, "Middle Eastern countries are believed to prefer Korean-made weapons systems because they face less political burden when importing weapons, and because Korean systems offer superior cost-effectiveness and faster delivery compared to similar systems."

Hanwha Systems' second-quarter results this year are expected to be solid due to increased defense exports. Lee said, "Second-quarter operating profit is expected to be around 81 billion won, which is similar to the same period last year but represents a 40% increase from the previous quarter. As in the first quarter, increased exports in the defense sector are expected to be the main driver of improved results."