Mirae Asset Securities logo

Setting the stage for a quantum leap

1Q25 preview: OP likely to beat consensus by 14%

For 1Q25, we expect Hanwha Aerospace to post revenue of W5.21tr (+259.5% YoY; 33% above the consensus), operating profit of W522.7bn (+2,845.8% YoY; 14% above the consensus), and an OP margin of 10%. We attribute the likely consensus beat to increased deliveries of Chunmoo rocket artillery systems to Poland (18 units), favorable FX, and operating leverage effects. We estimate the defense export margin at 33%.

Rights offering priced in; key focus now is whether major deals materialize

On Mar. 20, the firm announced a W3.6tr rights offering, hurting investor sentiment. However, on Apr. 8, it scaled back the proposed offering to W2.3tr (to be offered to existing shareholders at a 15% discount), with an additional W1.3tr to be raised via a third-party placement (with no discount); this revised structure should reduce dilution (11.5% ( 8.6%). The firm also sought to address market concerns through active communication, clearly laying out plans to expand defense production capacity, establish overseas operations, and build strategic partnerships―all aimed at boosting global market share over the medium to long term. To increase transparency, it also disclosed detailed investment plans totaling W11tr. This year, progress in a US MCS smart factory project (3Q25) and bidding for a Saudi defense project (2H25) could serve as key milestones toward securing multi-trillion-won contracts, including for a US self-propelled artillery replacement program and K9 and armored vehicle acquisitions by Saudi Arabia.

We estimate that the land systems division can sustain a revenue CAGR of 20% through 2027 based solely on its existing order backlog, and the pipeline of potential orders is also strong; potential deals include K9 howitzers for Vietnam (108 units) and Saudi Arabia (over 200 units), Chunmoo systems for Malaysia, and Redback infantry fighting vehicles for Poland (178 units) and Romania (246 units). If the firm expands into ammunition exports, it could benefit even further from Europe''s rearmament and post-ceasefire restocking cycle, supporting earnings growth and a valuation re-rating.

Maintain Buy and raise TP by 40% to W940,000

We maintain our Buy rating on Hanwha Aerospace and lift our target price by 40% to W940,000 (from W670,000). We changed to a sum-of-the-parts (SOTP) valuation method (vs. P/E previously), reflecting the firm’s growing role as an intermediate holding company. Due to the consolidation of Hanwha Ocean, we revised up our revenue forecasts by 85% for 2025 and 78% for 2026 and our operating profit forecasts by 41% for 2025 and 46% for 2026. Despite dilution from the rights offering, we lifted our target price in light of solid earnings and the recent rise in global defense peer valuations (average multiple up 54% YTD) amid Europe’s rearmament drive.