SK Securities announced on November 9 that it has reduced its target price for LIG Defense and Aerospace from 900,000 won to 700,000 won, a decrease of 22.2%, reflecting the valuation drop due to stock adjustments among global defense companies. However, the firm maintained its 'buy' rating, believing that the third-quarter performance decline is a temporary issue.
Han Seung-han, a researcher at SK Securities, explained that the target price cut is a response to the downward adjustment of multiples due to peer group stock corrections. He emphasized that the long-term growth outlook for the company has not been compromised; rather, it is a result of lower valuation multiples applied to the overall defense sector.
LIG Defense and Aerospace reported third-quarter consolidated revenue of 1.0713 trillion won, a 2.1% increase from the same period last year, but its operating profit fell by 24.6% to 67.6 billion won, significantly below the market expectation of 103.4 billion won.
The company faced delays in approximately 40 to 50 billion won in sales of the Cheongung II system to the United Arab Emirates due to external supply chain disruptions, and a decline in export margins of about 5 percentage points compared to the previous quarter due to currency fluctuations. Additionally, it accounted for around 9 billion won in development project loss provisions and approximately 10 billion won in operating losses from Ghost Robotics.
Despite the disappointing results, SK Securities assessed that the likelihood of a structural decline in profitability is limited, as the company has maintained an annual operating profit margin guidance of 8% and has raised its outlook for new orders.
The company has increased its new order target for the year from 5 trillion won to over 6 trillion won and raised its year-end order backlog forecast from 25 trillion won to 28 trillion won. Considering that cumulative new orders for the third quarter stand at about 1.1 trillion won, approximately 5 trillion won in new orders is expected in the fourth quarter alone.
Han noted, "We anticipate a rebound in stock prices driven by fourth-quarter order momentum, and from 2028, when the Iraq Cheongung II project and production capacity expansion effects come into play, both volume and pricing are expected to show significant growth."
He added, "At the current stock price level, the valuation burden is not significant, and we view this period before the fourth-quarter order momentum intensifies as a buying opportunity."
* This article has been translated by AI.
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