[Click eStock] "RF Systems Expected to Be Re-Rated as a Leading Player in K-Defense"

On January 12, ARC Research analyzed that RF Systems is expected to be re-rated from a hidden key player to a leading protagonist in the K-Defense industry. The firm did not provide an investment opinion or target price.

RF Systems' main business is the manufacturing and sales of defense antennas, radars, and environmental control systems based on its proprietary technologies such as design and specialized bonding. Its primary client is LIG Nex1, and it also supplies to Israeli defense company ELTA and Park Systems, among others.

ARC Research assessed that RF Systems is seeking to transform from a component and parts supplier to a subsystem provider, with a high possibility of moving up the value chain. The transition to subsystems is expected to proceed in two stages: the first stage involves expanding the product lineup, and the second stage is supplying rotary joints as finished products.

Kim Yongho, a researcher at ARC Research, stated, "RF Systems is currently supplying seeker antennas as a single item for guided weapon systems such as Cheongung-II and Haegung," adding, "The first stage is expected to be completed this year, and the changes will be applied to new orders after the business is finalized."

He also expressed expectations that RF Systems will continue to secure new orders. As of the third quarter of last year, the company's order backlog stood at 69.7 billion won, representing a 46% increase compared to the second quarter of 2024. The expected new orders for this year are projected to be around 60 billion won. Kim Yongho explained, "Considering the lead time in the defense industry, revenue recognition from the existing order backlog is expected to accelerate from next year."

He further emphasized, "Through collaborative development with clients, RF Systems obtained combat suitability certification at the end of 2024," and added, "Order visibility and mass production are expected to materialize this year, and the mass production of division-level representative soldier detection radars is also projected to begin in 2027."

Steady improvement in performance is also anticipated. He noted, "Due to the nature of the defense industry, it is difficult to achieve double-digit profit margins in the domestic market," but added, "RF Systems has ample potential for gradual improvement in operating profit margin to double digits or higher through overseas business expansion and an increased share of non-defense sales."

This year's expected revenue and operating profit are 45 billion won and 4.1 billion won, respectively. Next year, revenue is projected to reach 69 billion won, with operating profit at 6.2 billion won. He emphasized, "The enterprise value to operating profit (EV/EBIT) for 2027 is at 8.2 times, which is undervalued compared to the industry average of 16.7 times. The visibility of the subsystem business could serve as a catalyst for multiple re-rating."