[Click eStock] "Korea Aerospace Industries, Steep Growth Acceleration Expected Next Year... Target Price Raised"

Target Price Raised from 96,000 Won to 130,000 Won

On November 28, Hanwha Investment & Securities raised its target price for Korea Aerospace Industries (KAI) from 96,000 won to 130,000 won, anticipating a steep acceleration in growth next year. The investment opinion remains 'Buy'.

Bae Seongjo, a researcher at Hanwha Investment & Securities, stated, "With the domestic mass production of the KF-21 set for the second half of next year, discussions on exports to the Middle East are also expected to become more tangible." He added, "There are various export pipelines in place for next year, including the FA-50 for Egypt. We are focusing on the potential for a re-rating through the expansion of export regions and products."

Korea Aerospace Industries' sales for the third quarter of this year were 702.1 billion won, down 22.6% from the same period last year, and operating profit was 60.2 billion won, a 21.1% decrease, significantly missing the consensus (the average forecast by securities firms) for operating profit. Researcher Bae explained, "The main reasons for the lower-than-expected operating profit are the postponement of domestic LAH deliveries to the fourth quarter and delays in the progress of the Polish FA-50PL project." He continued, "For the fourth quarter, we estimate sales to increase by 20.6% to 1.3206 trillion won and operating profit to rise by 88.9% to 79.6 billion won. Including the seven LAH units postponed from the third quarter, more than 15 finished aircraft are expected to be delivered domestically and internationally."

Next year, the pace of earnings growth is expected to accelerate sharply. Researcher Bae explained, "This is because the domestic mass production of the KF-21 is set to begin in earnest in the second half of next year, and the recognition of revenue from FA-50 exports to Poland, Malaysia, and the Philippines is expected to accelerate."

He also suggested that attention should be paid to the momentum from the U.S. Navy's Undergraduate Jet Training System (UJTS) replacement project. Bae stated, "Given the expected issuance of the request for proposal (RFP) for the UJTS project in December, the momentum from this project is worth focusing on." He added, "This is a large-scale project worth over 10 trillion won, involving the introduction of 145 to 220 advanced trainer jets, and a preferred bidder is expected to be selected next year. The TF-50N from KAI and Lockheed Martin is widely considered to have a competitive edge in terms of airframe durability and operational experience, so the UJTS bid is expected to serve as a positive momentum for KAI's stock price." He further noted, "Additional order momentum is also anticipated at the end of the year, including contracts for the KF-21 Block-II air-to-ground armament, the second contract for Surion helicopters with the Iraqi Ministry of Interior, and contracts for Airbus aircraft components."