[Click eStock] "Hanwha Systems, Unstoppable Growth in Defense Business... Target Price Up"

On July 9, DS Investment & Securities raised its target price for Hanwha Systems to 67,000 won, maintaining a 'Buy' recommendation, citing expectations for improved profitability driven by the expansion of its export pipeline.

According to DS Investment & Securities, Hanwha Systems' estimated sales for the second quarter are projected to reach 908.8 billion won, up 32.3% year-on-year. Operating profit is expected to be 72.4 billion won, representing a 14.2% decrease compared to the same period last year. These figures are slightly below the market consensus of 912.6 billion won in sales and 74 billion won in operating profit.

The defense division is expected to record sales of 591.8 billion won, a 20% increase year-on-year, and operating profit of 62.1 billion won (an operating margin of 10.5%), up 2% from the previous year, driven by smooth progress in projects such as the UAE and Saudi Arabia Cheongung-II Multi-Function Radar (MFR) exports, the Poland K2 export project, and domestic mass production. However, Philly Shipyard is projected to see its deficit widen to minus 6 billion won. Analysts Kang Taeho and Kim Suhyeon attributed this to one-off factors such as increased costs due to U.S. steel tariffs and labor dispatch expenses from Hanwha Ocean, and analyzed that the deficit is likely to narrow in the second half of the year.

They stated, "Large export contracts such as the second phase of the Poland K2 and the Iraq Cheongung-II MFR are expected to be reflected in the order backlog in the second half of the year," and added, "The contract amounts are expected to reach approximately 400 billion won and 1.1 trillion won, respectively." For the second phase of the Poland K2 contract, 63 out of a total of 180 units will be produced locally (K2PL), and Hanwha Systems is also expected to win orders for upgrade equipment such as the active protection system radar for K2PL, in addition to the existing combat systems.

In addition, Hanwha Systems has signed MOUs with overseas companies, including SAR satellites with BAE Systems in the UK, air defense systems with Northrop Grumman in the US, and UAV AESA radar supply with Milkor in South Africa, thereby entering the supply chains of local companies directly. They emphasized that the expansion of the export pipeline and the ability to export smoothly despite strengthened local production policies in regions such as Europe will be key factors driving future export growth.

Investment highlights include a high 2026 operating profit growth rate (+36.5%) compared to peer groups, expectations for captive orders such as tankers from the group shipping company Hanwha Shipping for Philly Shipyard, a turnaround to profitability due to increased sales recognition of CV vessels, and accelerated improvement in profitability and export opportunities through diversification of the export pipeline.

DS Investment & Securities stated, "We recommend buying at this time, before the results of collaborations with numerous overseas defense companies are reflected in actual performance."