Hanwha Investment & Securities has maintained a ‘buy’ rating and a target price of ₩69,000 for Korea Aerospace Industries (KAI), despite anticipating a significant downturn in the company’s fourth-quarter performance. The investment firm’s positive outlook is underpinned by expectations of new export contracts in Southeast Asia and the Middle East during the first half of the year, and an overall improvement in KAI’s performance this year.
Philippine Air Force (PAF), Public domain, via Wikimedia Commons
According to a report released on Jan. 15th, the fourth-quarter results for KAI are expected to fall considerably below market expectations. Hanwha Investment & Securities projects a revenue of ₩1.0533 trillion, a 30.2% decrease compared to the same period last year. Operating profit is estimated at ₩49.6 billion, marking a 67.9% year-on-year decrease. These figures are well below what the market had anticipated. Several factors have contributed to this expected downturn, including one-off costs associated with the Iraq base reconstruction project, the impact of the Boeing strike, which temporarily reduced purchase orders, and a delay in recognizing revenue from the profitable Iraq CLS project.
Complete aircraft exports are also predicted to be down. Fourth-quarter complete aircraft exports are estimated to be ₩288.6 billion, a 55.9% decrease, with annual complete aircraft exports forecasted at ₩773.2 billion, a 26.2% decrease. However, Hanwha Investment & Securities anticipates a substantial turnaround in complete aircraft exports in the coming years. A 70% year-on-year increase is expected this year, followed by a further 15% or more increase next year, driven by the recognition of revenue from FA-50 contracts with Poland and Malaysia.
Looking ahead, KAI is predicted to have significant export opportunities. Potential new orders for the FA-50 in Southeast Asia are anticipated this year, along with possible orders for the Surion helicopter in Iraq and the UAE next year. Furthermore, strong new order momentum is expected for the FA-50 from Malaysia (second order), Uzbekistan, and Egypt. The KF-21 fighter jet programme is another key area of interest. The Block-I system development is set to be completed in 2026, with the first 20 aircraft from the initial mass production contract scheduled for delivery starting in the third quarter of 2026. Sales from the KF-21 are projected to exceed ₩1 trillion in 2026, and additional orders for the remaining 20 Block-I aircraft and export opportunities in the Middle East and South America are anticipated this year.
In conclusion, despite a weak short-term outlook for KAI’s fourth-quarter results, Hanwha Investment & Securities remains optimistic about the company’s growth potential, citing new export contracts and the KF-21 programme, and expects substantial revenue growth in the coming years.
about the company’s growth potential, citing new export contracts and the KF-21 programme, and expects substantial revenue growth in the coming years.
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