Korean brokerages uniformly lowered their price targets for Korea Aerospace Industries (047810), which posted an "earnings shock" in the second quarter.
According to financial data provider FnGuide on the 30th, six of the nine brokerages that published reports on Korea Aerospace Industries that day cut their price targets below previous levels. Daishin Securities lowered its target from 196,000 won to 165,000 won, Eugene Investment & Securities from 187,000 won to 159,000 won, LS Securities from 250,000 won to 190,000 won, and SK Securities from 230,000 won to 190,000 won.
Korea Aerospace Industries, which disclosed preliminary earnings the previous day, said second-quarter operating profit fell 43.1% from a year earlier to 48.4 billion won. This was an earnings shock that fell well short of the market consensus of 88.9 billion won. The company explained that the sharp drop in operating profit stemmed from a base effect, as the second quarter of last year had included one-time gains of 38 billion won from winning a profit claim lawsuit, while a delay in deliveries of the Light Armed Helicopter (LAH) Mir-On also had a temporary impact.
Daishin Securities issued a report that day titled "Disappointing Earnings, Looking to the Second Half," explaining that "the delivery schedule for the delayed LAH volume requires further consultation, leaving the timing of revenue recognition from deliveries uncertain."
Samsung Securities noted that "there is uncertainty in short-term earnings due to the possibility of further LAH delivery delays, the slump in export order contracts has yet to be resolved, and valuations across the defense industry at home and abroad have declined together," adding that "it is reasonable to wait for the period when these issues are resolved."
However, the brokerage community forecast that Korea Aerospace Industries' earnings would follow a "weak-first-half, strong-second-half" trend. LS Securities predicted that "although second-quarter earnings were weak, earnings improvement is expected in the second half, and the investment points remain valid — the FA-50, whose export competitiveness has been enhanced by the integration of medium-range air-to-air missiles, and the KF-21, which can evolve into a fifth-generation fighter, and their export orders."
SK Securities analyzed that "from the second half, earnings growth is expected to continue as the Mir-On LAH project normalizes and delivery volumes of the KF-21 and FA-50 expand," adding that "as visibility improves for KF-21 export contracts with the Philippines, Saudi Arabia and the UAE starting next year, following Indonesia this year, the stock will show upward momentum driven by order gains."
