[Click e-Stock] "Poongsan, Defense Sector Value Reassessed... Target Price Up"

Target Price Raised by 29% Compared to Previous Estimate

On July 16, NH Investment & Securities reported that a revaluation of the defense sector value is underway for Poongsan, and accordingly raised its target price from 149,000 won to 193,000 won. The investment opinion remains 'Buy'.

Lee Jaekwang, an analyst at NH Investment & Securities, stated, "We have raised Poongsan's target price by 29% compared to the previous estimate. This is due to the removal of the 25% discount rate that was previously applied to the EV/EBITDA multiple for cash generation when calculating the value of the defense sector, compared to the industry average enterprise value." He added, "The share price surged by 135% as of the previous day's closing, starting three days before Israel's airstrike on Iran's nuclear facilities. Given that the London Metal Exchange (LME) copper price remained largely unchanged during the same period, we believe the recent sharp rise in the share price reflects a market revaluation of the defense sector value, which had been undervalued until now."

Poongsan is the only domestic ammunition manufacturer in Korea, producing a wide range of ammunition from small to large calibers. Analyst Lee commented, "With the continued growth in the defense sector's performance driven by a surge in global ammunition demand, Poongsan recorded its highest-ever results in 2024, and growth is expected to continue this year." He further analyzed, "While the five major domestic defense stocks, excluding Poongsan, are trading at a 12-month forward price-to-earnings ratio (PER) of about 20 to 40 times, Poongsan, despite its recent share price surge, is still trading at around 15 times."

He also noted that the surge in U.S. copper prices is positive for Poongsan's U.S. manufacturing subsidiary. While LME copper prices have been weak due to concerns over demand slowdown from the U.S. 50% tariff and the unwinding of speculative positions, the Chicago Mercantile Exchange (CME) copper price has soared and is about 25% higher than the LME price. Analyst Lee said, "Even though the momentum from U.S. inventory buildup has subsided, the tight global physical copper supply-demand situation is expected to persist, so copper prices could trend upward in the mid- to long-term." He added, "The rise in CME copper prices is positive for PMX, Poongsan's U.S. manufacturing subsidiary."