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1Q25 OP beats consensus by 75%

1Q25 review: OP exceeds consensus by 75%

For 1Q25, LIG Nex1 delivered a sharp earnings surprise, with revenue of W907.6bn (+19% YoY; 13% above the consensus), operating profit of W113.6bn (+70% YoY; 75% above the consensus), and an OP margin of 12.5% (+7.1%p QoQ, +3.7%p YoY). The key drivers of profitability improvement were: 1) W8bn in settlement gains; 2) a higher revenue contribution from mass production; and 3) favorable FX. Excluding one-off settlement gains, operating profit would have come to W105.6bn (OP margin of 11.6%). Ghost Robotics posted revenue of W6bn and an operating loss of W4bn.

Export revenue reached W161bn, accounting for 17.7% of overall revenue (20.4% when factoring in Poland-bound K2 component shipments). The Middle East accounted for 80% of export revenue, including W65bn from the UAE for the development of KM-SAM II systems. At end-1Q25, the order backlog stood at W22.88tr (+2.8% YoY), with new orders totaling W4.21tr (including a KM-SAM II contract with Iraq).

Domestic profitability improving; export growth to drive earnings momentum

Notably, LIG Nex1 achieved strong profitability in 1Q25 solely through domestic mass production. While this raised expectations for structural margin improvement, management offered a cautious outlook―keeping its full-year OP margin guidance in the 7% range and projecting earnings to be stronger in 1H than 2H (similar to the 2022-23 pattern)―citing increased R&D costs. As such, we kept our estimates mostly unchanged and plan to monitor results over the next couple of quarters. We expect the revenue mix of exports to reach 26% in 2025, as the recognition of KM-SAM II exports to the UAE is likely to accelerate in 2H25. This year, we forecast KM-SAM II-related revenue from the Middle East at W430.2bn (accounting for 11% of overall revenue) and related operating profit at W77.4bn (assuming an OP margin of 18%; 23.7% of overall operating profit). For the KM-SAM II contract with Iraq, revenue recognition will likely begin in 2026-27. We expect earnings momentum to pick up markedly from 2026 as KM-SAM II deliveries to three Middle East countries begin to overlap.

Maintain Buy and raise TP by 40% to W450,000

We maintain our Buy rating on LIG Nex1 and raise our target price by 40% to W450,000 (from W321,000), which is based on a target P/E of 24.3x (the 2026F global peer average multiple) and our 2026F EPS of W18,365 (up from W16,800 previously). We changed our valuation methodology from P/B to P/E, as we expect earnings to grow meaningfully from 2026 onward.