iM Securities projected on November 4 that Korea Aerospace Industries (KAI) is expected to see heightened anticipation for defense exports following a confidential export order valued at 1.4 trillion won. However, reflecting the decline in valuations among global defense firms, the firm lowered its target price by 10.6% to 135,000 won while maintaining a 'buy' rating.
Researcher Byun Yong-jin noted, "Market interest has focused more on the newly confirmed confidential export order than on the third-quarter results themselves," adding that the large-scale export contract could improve investor sentiment across the defense sector.
KAI reported third-quarter revenues of 1.0643 trillion won and an operating profit of 79.4 billion won. While revenues fell short of market expectations by 10.5%, the operating profit was generally in line with forecasts, resulting in an operating margin of 7.46%.
The revenue shortfall was largely attributed to delays in the delivery of light armed helicopters (LAH). Due to engine defects that arose in the second quarter, only seven out of the planned 30 units were delivered in the first half of the year. Deliveries resumed in November, but additional shipments by year-end are expected to be limited to two or three units. Consequently, annual revenue is projected to fall short of the previous guidance of 5.7 trillion won by 400 to 500 billion won. However, it has been determined that KAI is not responsible for the engine defects. Byun anticipates that there will be no penalties for delays and that compensation for the delivery holdups may be possible.
Notably, the third-quarter new orders included a contract for complete aircraft exports valued at 1.4575 trillion won. The details regarding the country, items, and contract duration remain undisclosed at the request of the contracting party. Byun speculated that given the contract size, it could involve the export of more than ten FA-50 light attack aircraft or over twenty Surion helicopters. There is heightened interest in the Surion, as discussions have been ongoing with Middle Eastern countries such as Iraq and the United Arab Emirates. However, the specific contract details and items have yet to be confirmed.
KAI's cumulative order amount for the year stands at 2.2 trillion won, which is 21.1% of its annual target of 10.4 trillion won. The company aims to achieve approximately 10 trillion won in orders by year-end. With over 3 trillion won in orders expected from the third phase of the LAH mass production project, the success of additional export contracts will be crucial.
Byun stated, "If the confidential order is for FA-50 contracts, it would confirm the expanding demand for our main export product," adding that if it pertains to Surion contracts in the Middle East, it could signal a resumption of arms orders from the region. He concluded, "In either case, it is expected to positively influence investor sentiment across the defense sector."
* This article has been translated by AI.
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