[Click e-Stock] "Hanwha Systems, Essential Long-Term Investment Despite Short-Term Earnings Volatility"

Target Price Raised

On July 31, Daishin Securities stated regarding Hanwha Systems, "Although short-term earnings volatility is increasing due to the stabilization of the Philly Shipyard, it is clearly an essential investment in the long term." The firm maintained its 'Buy' investment rating and raised its target price by 31.9% to 62,000 won.

For the second quarter on a consolidated basis, Hanwha Systems reported sales of 768.2 billion won (an 11.8% increase year-on-year) and operating profit of 33.5 billion won (a 58.0% decrease), falling short of market consensus. The operating profit margin was 4.4%, down 7.3 percentage points from the previous year. In the defense sector, thanks to the second-phase mass production of TICN and TMMR and the effect of exports to the Middle East, sales reached 470.2 billion won and operating profit was 52.5 billion won, representing growth of 9.3% and 4.4% quarter-on-quarter, respectively. The ICT segment maintained similar levels to the first quarter, with sales of 147.0 billion won and operating profit of 10.8 billion won.

In contrast, the other segment recorded sales of 151.0 billion won and an operating loss of 29.8 billion won. Lee Taehwan, a researcher at Daishin Securities, explained, "This reflects an operating loss of 29.2 billion won from the consolidated subsidiary Philly Shipyard," and added, "The main causes were costs related to SRIV (offshore wind installation vessel) and personnel dispatch costs from Hanwha Ocean for initial normalization."

While steel tariffs are expected to impose costs of 50% by item, these were not reflected in the second quarter results and are expected to affect performance starting in the second half. Accordingly, the annual forecast for other operating losses has been raised to 55.0 billion won.

Lee also noted, "In addition to Philly Shipyard, the company is pursuing an equity acquisition of the Australian shipbuilder Austal and is awaiting approval from the Australian Foreign Investment Review Board." He assessed, "There is a valuation burden in the short term, but the growth potential after business normalization should be fully considered."