The Hanwha Systems segment reported revenue growth of 19% y/y to KRW934bn, driven by an increase in both domestic sales and exports. Operating income grew remarkably by 222% to KRW893bn, supported by higher domestic and export volumes and lower operating expenses. Looking ahead, Hanwha expects continued growth in performance driven by domestic and export volume increase in Land Systems, increase in sales of GTF engine deliveries in Aerospace.

Hanwha aerospace co., ltd., founded in 1977 and headquartered in Changwon, South Korea, is a leading defense and aerospace company. The group designs, manufactures and maintains advanced systems in aerospace, weapons, space launch vehicles and underwater systems. Listed on the Korean stock exchange, the company operates across five core segments: Land-systems, which accounted for 59% of FY 24 sales-mix; Aerospace, 17%; and Hanwha-systems, 24%.

Geographically, Hanwha serves clients in several countries like Poland, Romania, Estonia, Finland, Norway, Turkey, Middle Eastern countries, Australia, India, Philippines and other countries.

Geopolitical dynamics fuel industry growth

As geopolitical tensions persist and defense budgets continue to rise worldwide, the global defense market is poised for expansion, presenting new opportunities for orders. Leveraging its diversified weapon system lineup, the company is actively marketing across Europe, the Middle East, and the Asia-Pacific region, while closely monitoring procurement announcements from various countries. Demand for the K9 Self-Propelled Howitzer (SPH), Chunmoo Multiple Rocket Launch System (MRLS), and Redback Infantry Fighting Vehicle (IFV) is rising in these regions.

At the end of 2024, the total backlog for the Land Systems segment stood at KRW32.4bn, reflecting growth from the previous year. The company secured multiple contracts last year, further expanding its order backlog, including Phase 2 execution contracts for Poland Chunmoo and a K9 supply contract for Romania. In Q4, significant contracts such as Saudi Arabia M-SAM launchers and components worth KRW950bn were signed. Additionally, Phase 4 mass production of K21 Infantry Fighting Vehicles worth KRW700bn and Phase 3 mass production of 230mm multiple rocket launchers worth KRW340bn demonstrate a steady increase in the order backlog.

Looking ahead to 2025, the Land Systems segment is expected to achieve approximately 20% revenue growth, driven by continued strength in domestic mass production and increased export volumes. Based on publicly available information regarding contract duration, volumes, and remaining orders, Poland K9 deliveries in 2025 are expected to exceed the 70 units delivered in 2024, while Poland Chunmoo deliveries are projected to increase to at least 50 units, surpassing the 2024 figure. In addition, deliveries for the Australia K9 and Egypt K9 contracts will commence, further supporting continued growth backed by a robust domestic and international order backlog.

Hanwha ideally poised for growth

Hanwha has demonstrated robust financial performance, underscoring its strategic positioning and operational excellence over recent years. The company achieved an impressive revenue CAGR of 16.3% from FY 19 to FY 24, reaching KRW11.3tn. Operating profit growth outpaced the top line, registering a CAGR of 38.1% to KRW1.7tn. Consequently, operating margins expanded by over 11 pp to 14.2% in FY 24. Net income surged remarkably, with a CAGR of 77% to KRW2.6tn in FY 24.

Driven by a consistent rise in the bottom line, Hanwha generated cumulative FCF of KRW2.0tn, resulting in a substantial increase in its cash position to KRW3.0tn in FY 24 from KRW1.0tn in FY 19. However, total debt increased to KRW10.7tn in FY 24 from KRW2.2tn in FY 19. Despite this increase, the debt-to-equity ratio rose slightly to 94% in FY 24 from 76% in FY 19, driven by higher shareholder’s equity.

In comparison, the company’s local peer, Korean aerospace industries, ltd., witnessed a lower growth of 3.1% in revenue CAGR over the past five years to KRW3.6tn in FY 24. However, operating income declined at a CAGR of -2.5% to KRW241bn, resulting in lower net income growth at a CAGR of 0.2% to KRW172bn.

Hanwha stock soars amid strong performance

Over the past 12 months, Hanwha’s stock has delivered an outstanding return of approximately 177%, driven by robust financial performance, an increasing order book, and strategic capacity investments. In comparison, Korean aerospace industries, witnessed lower returns of about 52% over the same period.

Despite the sharp run-up in Hanwha’s stock price the company is trading lower compared to its peer. Currently, Hanwha is trading at a P/E of 19x, based on the FY 25 estimated EPS of KRW35,026. This is lower than Korean aerospace industries, ltd., which is trading at 28x, but trades higher than Hanwha’s five-year historical average of 12x.

Conversely, in terms of EV/EBITDA, Hanwha is currently trading at 10x, based on the FY 25 estimated EBITDA of KRW3.4tn. This is lower than its peer Korean aerospace industries (17x) and its five-year historical average of 15.1x.

The stock is currently covered by twenty analysts who maintain a positive view on the company. Amongst them, ten have issued 'Buy' ratings, eight have 'Outperform' ratings, and two have 'Hold' ratings, with an average target price of KRW708,050, implying 12% upside potential.

Overall, Hanwha is well-positioned for long-term growth, bolstered by favorable sector tailwinds, a strong order book, and solid fundamentals. Furthermore, the company's prudent operational efficiencies have significantly enhanced profitability. Consequently, Hanwha anticipates sustained growth momentum and has revised its medium-term objectives upward. However, Hanwha faces risks of rising geopolitical instability, supply chain disruption, regulatory changes, cybersecurity threats and technology obsolescence.