The Korean defense industry is experiencing a surge as conflicts in Russia, Ukraine, the U.S., and Iran continue to escalate. The combined operating profit of five defense companies surpassed 1.5 trillion won in the second quarter, setting a new record for quarterly performance. However, the companies faced mixed results due to gaps in export volumes.
According to the Financial Supervisory Service and industry sources, the consensus for the second-quarter operating profit of Hanwha Aerospace, Hyundai Rotem, Korea Aerospace Industries (KAI), LIG Defense & Aerospace (LIG D&A), and Hanwha Systems is estimated at 1.531 trillion won. This marks a 16.2% increase from the combined operating profit of 1.317 trillion won in the same quarter last year.
The total sales are projected to reach 12.639 trillion won, a 23.1% increase from 10.270 trillion won in the second quarter of last year.
Individually, Hanwha Aerospace is expected to report second-quarter sales and operating profit of 7.553 trillion won and 997 billion won, respectively, reflecting increases of 19.3% and 15.3% year-on-year. The sales figures are bolstered by exports of K9 self-propelled howitzers and Chunmoo multiple rocket launchers to Poland, along with improved profitability due to the stabilization of mass production for Chunmoo. Additionally, the significant increase in operating profit from its subsidiary Hanwha Ocean positively impacted overall results.
Hyundai Rotem saw an increase in sales but a sharp decline in operating profit. The second-quarter sales are expected to rise by 13.3% to 1.606 trillion won, while operating profit is projected to drop by 9.7% to 232.4 billion won. The decline in profitability is attributed to a gap in exports following the completion of the first batch delivery of K2 tanks to Poland, along with delays in export plans to Iraq, which were anticipated to be finalized in the first half of the year due to increased risks in the Middle East. Despite the drop in profitability, the volume of K2 tanks supplied domestically has increased, contributing to higher sales figures.
Hanwha Systems is expected to report second-quarter sales of 1.117 trillion won, a 45.5% increase, and an operating profit of 103.7 billion won, up 218.8%. The defense sector benefited from strong exports of K2 tanks to Poland and the Chunkoo-II multifunction radar (MFR) to the United Arab Emirates and Saudi Arabia. In the ICT sector, projects such as the enterprise resource planning (ERP) system for Hanwha's shipbuilding division and smart plant systems for Hanwha Aerospace contributed positively.
KAI's second-quarter sales are projected at 1.159 trillion won, a 40.1% increase, with operating profit expected to rise by 4.3% to 889 billion won. LIG D&A is anticipated to report second-quarter sales and operating profit of 1.159 trillion won and 109 billion won, respectively, reflecting increases of 22.7% and 40.5% compared to the same quarter last year.
Looking ahead, the five defense companies are likely to continue securing large contracts in the second half of the year. Recently, Hanwha Aerospace signed a product supply contract worth 660 billion won, maintaining a positive trend in orders. Industry insiders speculate this is related to discussions on the K9 self-propelled howitzer project in Spain. Negotiations for a third local production contract for K9 with Poland are also ongoing.
Hyundai Rotem is continuing negotiations to export K2 tanks and K808 wheeled armored vehicles to Peru. It is also engaged in discussions for K2 tank exports to Iraq, valued at approximately 9 trillion won. KAI is pursuing exports of KF-21 jets to Indonesia and the Philippines, as well as FA-50 light attack aircraft to Peru and Egypt. LIG D&A is working on exporting Chunkoo-II to Qatar and Kuwait.
DS Investment & Securities noted, "The ongoing threat from Russia to Poland is prompting Korean defense companies to gradually meet NATO's regional production requirements, which will likely expand their market share. Uncertainties regarding large orders are expected to be resolved starting in the second half of the year."
* This article has been translated by AI.
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