K-defense operating profit expected to jump by 200% in Q3

While the third-quarter earnings of major listed companies in Korea, including Samsung Electronics, have been weak, expectations for earnings surprises from defense companies are growing. The market expects defense companies, including Hyundai Rotem and Hanwha Aerospace, to post operating profit growth of more than 200 percent compared to last year. Analysts say that the growth trend of defense companies will continue for the time being amid the unstable international geopolitical situation.

According to sources in the defense industry on Wednesday, a number of major domestic defense companies are scheduled to announce their third-quarter earnings, starting with Hyundai Rotem on October 28. According to Kiwoom Securities, Hyundai Rotem's third-quarter sales are expected to reach 1.117 trillion won (about 808 million U.S. dollars), up 21 percent from the same period last year, and operating profit is expected to increase 223 percent to 132.6 billion won (96 million dollars). Shipments of its flagship K2 tanks to Poland are continuing, and a second contract with Warsaw is on the horizon. “The size of the second contract is expected to increase by more than 30 percent compared to the first contract,” said Lee Han-geol, a researcher at Kiwoom Securities. “If the company succeeds in winning the second contract in Poland and Romania’s new tank procurement project, its overall order backlog in the defense sector will more than double from the end of the first half of this year.”

Market expectations also run high for Hanwha Aerospace's Q3 earnings, as the company’s stock is poised to hit 400,000 won (289 dollars) per share. Hana Securities expects Hanwha Aerospace's third-quarter revenue to reach 2.56 trillion won (about 1.80 billion dollars), up 29 percent from the same period last year, and operating profit to jump 202 percent to KRW 346.8 billion (251 million dollars). It expects the company's earnings will continue to grow for the foreseeable future as it has a long queue of exports to Poland, including the Cheonmoo multi-launch rocket and the K9 self-propelled howitzers.

LIG NexOne's third-quarter revenue is expected to increase by 38 percent year-on-year to 739.2 billion won (535 million dollars) and operating profit is expected to increase 52 percent to 62.4 billion won (45 million dollars). LIG NexOne's performance is also expected to continue to be favorable, with exports of its surface-to-air guided missile Cheongung 2 to the Middle East and the guided missile Bugung to North America on the horizon. Hanwha Systems and Korea Aerospace Industries are expected to report Q3 operating profit of 53.4 billion won (38.6 million dollars) and 73.1 billion won (52.9 million dollars), up 43 percent and 12 percent, respectively, from the same quarter last year.


김형민 기자 kalssam35@donga.com