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KM-SAM II exports to make meaningful revenue contribution in 2025

4Q24 preview: OP to miss consensus by 23%

For 4Q24, we expect LIG Nex1 to report revenue of W896.9bn (+32% YoY; in line with the consensus) and operating profit of W45bn (+22% YoY; 23% below the consensus). OP margin likely narrowed slightly to 5% (-2%p QoQ, -0.4%p YoY). We attribute the likely miss to year-end provisioning and the consolidation of loss-making Ghost Robotics.

2025 outlook: Strong order momentum and KM-SAM II revenue generation

In 2025, we expect the company to secure orders worth over W10tr. Potential export deals include Poniard surface-to-ship missiles to the US (W5-6tr), L-SAM systems to the UAE and Saudi Arabia (W4-5tr each), and K-SAAM systems to Malaysia (W300-400bn). Domestically, the company has a strong lineup of next-generation air defense system projects, including L-SAM production (W1.5tr) and the development of LAMD (W2.9tr through 2033), L-SAM-II (W1tr through 2032), and M-SAM-III (W2.8tr through 2034) systems.

Starting in late 2025, KM-SAM II exports to the Middle East should contribute significantly to revenue, causing earnings growth to accelerate. This year, we estimate that the KM-SAM II project will generate revenue of W430.2bn (+568% YoY; 11.8% of overall revenue) and operating profit of W64.5bn (assuming OP margin of 15%; 21.9% of overall operating profit). From 2026, we expect KM-SAM II revenue and operating profit to increase by around 2.7x YoY, driving overall earnings growth.

Meanwhile, Ghost Robotics should continue to post losses this year. That said, we find it positive that: 1) the subsidiary has settled a patent lawsuit with Boston Dynamics; and 2) many countries (including the US) are considering increasing investments in robots, drones, and AI for military use (due to lessons learned from the Russia-Ukraine War). Notably, the US military has already tested Ghost Robotics’ Vision 60 by equipping it with a remote-controlled assault rifle for anti-drone operations. We think Ghost Robotics could help unlock export opportunities to advanced countries going forward.

Maintain Buy and TP of W321,000

We maintain our Buy rating on LIG Nex1 with a target price of W321,000 (implied P/E of 26.9x based on 2025F EPS of W11,939). The company has an order backlog exceeding seven to eight years and a diverse lineup of unmanned technologies such as military drones (KCD-40, KCD-200), unmanned surface vessels (Sea Sword), and robotic systems (Ghost Robotics’ Vision 60), which are well-aligned with the future defense industry paradigm. As such, the stock is our preferred defense pick over the medium/long term.