KB Securities announced on July 29 that it has lowered its target price for Hanwha Systems from 120,000 won to 85,000 won, despite the company reporting strong second-quarter results that exceeded market expectations. The adjustment reflects anticipated declines in profitability for the second half of the year and recent market volatility. However, the investment rating remains 'buy' due to the company's long-term growth potential.
In a report, analyst Jeong Dong-ik stated, "The consolidated results for the second quarter showed sales of 1.1176 trillion won and operating profit of 103.7 billion won, surpassing market expectations by 18.3% and 76.3%, respectively."
He further explained that the defense sector contributed significantly to the improved performance, with high-margin exports such as the Cheongung-II surface-to-air missile multifunction radar to the United Arab Emirates and the K2 tank fire control system to Poland being recognized as revenue in the second quarter.
Additionally, domestic sales from the Ulsan-class frigate and KF-21 fighter jet radar also contributed to the positive results. The reduction in operating losses at the U.S. shipyard, from 46.6 billion won in the previous quarter to 19.2 billion won this quarter, also aided in improving operating profit.
However, Jeong predicts a slight decline in profitability for the second half of the year. He noted, "Despite seasonal factors and increased sales due to delivery schedules, a drop in operating profit margin is inevitable. This is expected as significant investments in the development of various radars, laser weapons, unmanned surface vessels, and space-related technologies will increase substantially."
He anticipates that the overall operating profit margin, which was 7.2% in the first half, will fall to around 3.4% in the second half.
* This article has been translated by AI.
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