In the past year, defense stocks have emerged as leading players in the South Korean stock market, buoyed by changes in the global security environment and increased defense spending. However, despite being in the same sector, stock performance and market evaluations have varied. Korea Aerospace Industries (KAI) recorded the highest return, while Hanwha Aerospace is viewed as having the greatest growth potential.
According to the Korea Exchange, from July 1 of last year to July 1 of this year, KAI's stock rose from 89,800 won to 154,200 won, marking a 71.71% increase, the highest among four major defense stocks. LIG Defense and Aerospace saw a 42.59% rise from 540,000 won to 770,000 won, while Hanwha Aerospace increased by 28.66%, from 848,000 won to 1,091,000 won. In contrast, Hyundai Rotem was the only stock to decline, falling 3.41% from 196,500 won to 189,800 won.
However, experts caution against making definitive judgments about a company's competitiveness based solely on stock price trends. Most defense stocks peaked in March and April amid heightened geopolitical tensions in the Middle East and expectations of large overseas orders, but have since experienced corrections due to profit-taking and easing geopolitical tensions. Hanwha Aerospace reached a 52-week high of 1,655,000 won on March 4, LIG Defense and Aerospace hit 1,118,000 won on April 22, KAI peaked at 215,500 won on March 3, and Hyundai Rotem reached 282,000 won on April 30.
Analysts view the recent corrections as a natural pause in a structural growth phase rather than a trend reversal. They argue that global defense demand is no longer driven solely by the outbreak or conclusion of specific wars but is now influenced by a combination of security order fractures, institutionalized defense spending increases, and restocking demands due to operational wear and tear.
Currently, Hanwha Aerospace is receiving the highest ratings from analysts. Baek Joo-ho, a researcher at Hyundai Motor Securities, identified Hanwha Aerospace as a top pick, noting its potential order pipeline of approximately 37 trillion won. He highlighted the company's exposure to globally sought-after weapon systems, including the K9 self-propelled howitzer, Cheonmu, and L-SAM value chains, as well as its expansion of local production systems in Europe and the U.S. through joint ventures in Romania and Poland and the K9MH project in the U.S.
LIG Defense and Aerospace is considered a key beneficiary of the expanding air defense market in the Middle East. With the potential for additional orders from existing clients in the UAE and Saudi Arabia centered around the Cheongung-II and L-SAM systems, the company is also pursuing localization efforts in Europe through collaboration with Germany's Rheinmetall. Plans include localizing medium- and long-range air defense missile systems and co-developing low-altitude air defense missile systems with Rheinmetall.
KAI, which recorded the highest return over the past year, was a latecomer to the defense rally. While Hanwha Aerospace and LIG Defense and Aerospace gained attention first for their ground weapon and air defense system exports, KAI's export expansion of aviation platforms like the FA-50 and KF-21 has only recently begun to be reflected in the market this year. As a result, KAI had the highest return among the four defense stocks over the past year, but its future growth will depend on the expansion of both ground weapons and air defense systems, as well as aviation platform exports.
Hyundai Rotem, despite being the only stock to decline over the past year, is still viewed as having long-term growth potential. Hyundai Motor Securities pointed to follow-up contracts for the K2PL in Poland and new export projects in Peru and Iraq as key growth drivers. The application of domestically produced power packs for the K2 tank is expected to alleviate export constraints, and a local production line in Poland is also underway. However, the nature of large defense contracts means that delays in contract timing due to local political schedules could pose a risk.
Ultimately, the future competition will hinge more on local production, joint development, and the establishment of maintenance, repair, and overhaul (MRO) systems rather than just the scale of orders. Baek Joo-ho analyzed that “the long-term export competitiveness of K-defense will likely depend on how proactively local bases, local partners, joint ventures, and MRO systems are established.” Yang Seung-yoon, a researcher at Eugene Investment & Securities, noted that “collaboration between global defense firms and South Korean defense companies is accelerating,” stating that they have entered a phase of global co-development beyond just local production.
* This article has been translated by AI.
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