The ongoing conflicts between Russia and Ukraine, as well as the U.S. and Iran, have sparked a boom in South Korea's defense industry. The combined operating profit of five defense companies surpassed 1.5 trillion won in the second quarter, setting a new record for quarterly performance. However, the results varied significantly among the companies due to gaps in export volumes.
According to the Financial Supervisory Service and industry sources, the consensus for the second-quarter operating profit of Hanwha Aerospace, Hyundai Rotem, Korea Aerospace Industries (KAI), LIG Defense and Aerospace (LIG D&A), and Hanwha Systems is projected at 1.531 trillion won, a 16.2% increase from 1.317 trillion won in the same period last year.
The combined revenue is expected to rise by 23.1% to 12.639 trillion won, compared to 10.270 trillion won in the second quarter of last year.
Individually, Hanwha Aerospace is anticipated to report second-quarter revenue and operating profit of 7.553 trillion won and 997 billion won, respectively, marking increases of 19.3% and 15.3% year-on-year. The sales figures reflect the successful export of K9 self-propelled howitzers and Chunmoo multiple rocket launchers to Poland, along with improved profitability due to the stabilization of mass production for Chunmoo. Additionally, the significant increase in operating profit from its subsidiary Hanwha Ocean positively impacted overall results.
Hyundai Rotem saw an increase in revenue but a sharp decline in operating profit. The second-quarter revenue is expected to rise by 13.3% to 1.606 trillion won, while operating profit is projected to drop by 9.7% to 232.4 billion won. The decline in profitability is attributed to a gap in exports following the completion of the first batch delivery of K2 tanks to Poland, as well as delays in export plans to Iraq, which were anticipated to be finalized in the first half of the year due to escalating risks in the Middle East. Despite the drop in profitability, the volume of K2 tanks supplied domestically has increased, contributing to higher sales figures.
Hanwha Systems is expected to report second-quarter revenue of 1.1176 trillion won, a 45.5% increase, and an operating profit of 103.7 billion won, up 218.8%. The defense sector benefited from strong exports of K2 tanks to Poland and the Chunkoo-II multifunction radar to the United Arab Emirates and Saudi Arabia. In the ICT sector, projects such as the enterprise resource planning system for Hanwha Heavy Industries and smart plant systems for Hanwha Aerospace contributed positively.
KAI's second-quarter revenue is projected at 1.1597 trillion won, a 40.1% increase, with operating profit expected to rise by 4.3% to 889 billion won. LIG D&A is forecasted to achieve second-quarter revenue and operating profit of 1.1597 trillion won and 109 billion won, respectively, representing increases of 22.7% and 40.5% compared to the same period last year.
Looking ahead to the second half of the year, the five defense companies are likely to continue securing large contracts. Recently, Hanwha Aerospace signed a supply contract worth 660 billion won, maintaining a positive trend in orders. Industry insiders speculate this is related to discussions on the K9 self-propelled howitzer project in Spain. Negotiations are also ongoing with Poland for a third local production contract for the K9.
Hyundai Rotem is continuing negotiations to export K2 tanks and K808 wheeled armored vehicles to Peru. Additionally, discussions are underway for K2 tank exports to Iraq, estimated at around 9 trillion won. KAI is pursuing exports of KF-21 jets to Indonesia and the Philippines, as well as FA-50 light attack aircraft to Peru and Egypt. LIG D&A is working on exporting Chunkoo-II systems to Qatar and Kuwait.
DS Investment & Securities noted, "The ongoing threat from Russia to Poland continues to be a concern, and as South Korean defense companies gradually meet NATO's regional production requirements, market share is expected to expand. Uncertainties regarding large orders are expected to be resolved starting in the second half of the year."
* This article has been translated by AI.
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