Defense Division to Lead Earnings Growth

Hanwha Systems is poised for continued earnings growth, led by its defense division, supported by increased exports of Korean weapons systems. The delivery of 96 K2 tanks is scheduled for next year, with 56 tanks planned for this year. Additionally, mass production of Cheongung II multi-function radars for the UAE and Saudi Arabia is set to begin next year. Further, residual contracts with Poland, new contracts with Romania, and additional mass production in Korea are expected. Additional exports of Cheongung II multi-function radars also appear possible. Given these developments, we anticipate the defense division will continue to drive earnings growth at Hanwha Systems.

Consolidated Recognition of Philly Shipyard Earnings Expected Next Year

Hanwha Systems is set to receive approval from the US CFIUS in November, which will allow it to hold a 60% stake in Philly Shipyard. This will result in Philly Shipyard being recognized as a consolidated company from next year. Although the shipyard has been experiencing operating losses since 2019, we see little possibility of sustained losses, considering the investment's eventual participation in US naval ship projects. In our view, Philly Shipyard is likely to replace Overair as a significant growth engine.

2Q24 Review: Record-High Earnings

Hanwha Systems recorded record-high earnings for 2Q24, driven by increased deliveries of K2 tanks to Poland. The ICT division also saw solid earnings growth, thanks to a rise in business portion of subsidiaries. We have revised our future earnings projections upwards, reflecting the robust 2Q24 result. However, excluding the value of investment in Overair and considering investment adjustments underway for new businesses, we apply a 30% discount to the value of the satellite/digital platform business. We maintain our target price (TP).