[This Week's Hot Pick] The First Year of KF-21 Exports... Korea Aerospace Industries Ready for Takeoff

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Defense stocks, which had been on the sidelines during the KOSPI rally at the end of last year, are now surging like a pillar of fire at the start of the new year. Global geopolitical tensions triggered by U.S. military actions are acting as a tailwind for share prices. In particular, Korea Aerospace Industries, which has steadily raised its lows since last year, has jumped 32% so far this year alone, repeatedly hitting all-time highs. This momentum even slightly outpaces the sector leader, Hanwha Aerospace. With the resolution of delivery delays that hampered fourth-quarter results last year, a sharp increase in profits is expected this year.

Defense Stocks Surge Amid Renewed Geopolitical Tensions

Recent international developments are creating a favorable environment for domestic defense stocks, including Korea Aerospace Industries. The geopolitical crisis has flared up again following the U.S. attack on Venezuela, while President Donald Trump’s remarks and actions are pressuring neighboring countries to increase their military spending. President Trump recently signed an executive order withdrawing from 66 international organizations under the United Nations and has drawn global attention by insisting that the defense budget for fiscal year 2027 be increased by 50% to 1.5 trillion dollars (about 2,191 trillion won). The U.S. defense budget for fiscal year 2026 (October 2025-September 2026) is 901 billion dollars.

Kang Jin-hyuk, a researcher at Shinhan Investment Corp., stated, “Geopolitical instability has intensified due to military actions and political intervention in Venezuela, reaffirming the shift to a power-first order over international norms. Along with the benefits for Korea Special Shipbuilding and other MASGA (Make American Shipbuilding Great Again) beneficiaries, the move into an ‘era of power’ is a key driver for defense stocks’ performance.”

Performance and Policy Momentum: A Double Engine

For now, Korea Aerospace Industries’ results last year are expected to end on a somewhat disappointing note. This is reportedly due to delays in the delivery of major finished aircraft both domestically and internationally. Korea Aerospace Industries’ fourth-quarter 2023 revenue is projected at 1.26 trillion won (up 15.1% year-on-year), with operating profit at 111 billion won (up 181.1%), both falling short of market expectations.

Jung Dong-ik, a researcher at KB Securities, analyzed, “The sluggish revenue is largely due to the postponement of revenue recognition for the FA-50GF repatriation aircraft exported to Poland and the Light Armed Helicopter (LAH), some of which have been carried over to the first quarter of this year. The weak operating profit is estimated to be a result of decreased revenue, seasonal factors such as amortization of R&D expenses, and a reduced proportion of high-margin revenue from projects like the Iraq CLS project.” The actual number of finished aircraft delivered by Korea Aerospace Industries last year is estimated at 57.7% of the original forecast.

However, as the delayed deliveries are expected to be completed in the first and second quarters of 2026, concerns about a slowdown in performance this year are likely to be dispelled. Researcher Jung added, “In addition to the 200 billion won in revenue carried over from the fourth quarter of last year, mass production revenue from the KF-21, which was barely reflected in 2025, is expected to add another 700 to 800 billion won this year. Furthermore, exports of the FA-50 to Poland, Malaysia, and the Philippines are set to increase significantly, which will not only drive revenue growth but also improve profitability.”

Policy momentum is also cited as a key factor expected to boost Korea Aerospace Industries’ share price this year. The government’s recently announced “2026 Economic Growth Strategy” includes an initiative to make South Korea one of the world’s top four defense powers, with approximately 3.6 trillion won from the National Growth Fund to be invested in the aerospace and defense sectors.

The First Year of KF-21 Exports... Target Prices Raised by Analysts

The most notable share price momentum in the view of analysts is Korea Aerospace Industries’ order pipeline. In addition to the best-selling FA-50, the United Arab Emirates and Saudi Arabia have shown strong interest in the KF-21, raising expectations for meaningful export achievements.

The possibility of the Philippines adopting the KF-21 is also gaining traction. Lee Jaekwang, a researcher at NH Investment & Securities, said, “The Philippines is currently evaluating the Gripen E/F and KF-21 as the leading candidates, and we estimate that the KF-21 will have the edge in terms of price and performance competitiveness (with the potential to evolve into a stealth aircraft),” raising the target price from 122,000 won to 158,000 won. Previously, the Philippines purchased 12 FA-50s in 2014 and another 12 last year, making it a major client.

Jang Namhyun, a researcher at Korea Investment & Securities, commented, “The selection of the UJTS (U.S. Navy trainer replacement program) contractor, expected in the first quarter of 2027, will also serve as a major share price catalyst in the second half of 2026,” raising the target price from 140,000 won to 178,000 won. The UJTS is a program to replace 188 aging T-45 Goshawk trainers for the U.S. Navy, with the T-50, a joint project between Lockheed Martin and Korea Aerospace Industries, considered a strong candidate.