Defense Industry: Export Visibility to Rise Next Year, Optimal Time to Buy

Korea Investment & Securities has maintained its 'overweight' rating on the defense sector, projecting that export visibility for defense companies will increase next year.

Jang Namhyun, a researcher at Korea Investment & Securities, stated, "Stock prices have declined due to a lack of short-term momentum and expectations for an end to the war, but the export pipeline, which is expected to materialize in 2026, is actually becoming even more robust." He added, "With supply shortages in Europe persisting, exports are expected to expand across all global regions, driven by rapid delivery times." He further commented, "Given the valuation gap that has emerged ahead of 2026, when export visibility is high, now is an optimal time to buy."

Recently, the European Union (EU) agreed to provide 90 billion euros (approximately 156 trillion won) in support to Ukraine. This will be in the form of interest-free loans backed by the EU budget, and the funds are expected to be used for Ukraine's weapons purchases and fiscal needs over the next two years. Jang explained, "Although Korean weapon systems cannot be exported directly to Ukraine, demand for Korean products is expected to increase as European weapon systems sold to Ukraine create supply gaps." He continued, "In fact, the production of European ground weapon systems is already insufficient compared to required levels, and as support for Ukraine continues based on limited production capacity, the supply shortage in Europe is likely to worsen."

Korea Investment & Securities identified Hanwha Aerospace as its top pick in the sector. Jang noted, "Hanwha Aerospace has secured the largest export pipeline in Europe, the Middle East, and the United States, based on a diverse product portfolio including the K9, Cheonmu, Redback, and propellants." He added, "However, its price-to-earnings ratio (PER) for 2027 is 14.9 times, which is lower than the European peer average of 23.7 times."

Previously, on December 9, Hyundai Rotem signed a master agreement with Peru to supply 54 K2 tanks and 141 K808 armored vehicles. Jang commented, "Although the specific contract value has not yet been disclosed, foreign media estimate it at 2 billion dollars. Assuming a unit price of 3 billion won for each K808 armored vehicle, the unit price for each K2 tank is estimated to exceed 45 billion won, which is similar to the export price of K2 tanks to Poland." He further analyzed, "Going forward, the export price of K2 tanks is expected to be set based on the price sold to Poland. As a result, a stable high-margin structure is likely to be maintained in future export projects, and the Peru deal is also expected to record profitability comparable to that of Poland."