Hanwha Aerospace set to post rebound in Q3

Hanwha Aerospace's manufacturing facility in Changwon, South Gyeongsang Province

By Lee Min-hyung

Shin Hyun-woo, CEO at Hanwha Aerospace

Hanwha Aerospace, a manufacturer of aircraft engines and defense machine parts, is set to post a rebound in the third quarter amid expectations for its recent acquisition of the group's IT service-providing affiliate Hanwha S&C.

On Monday, Hanwha Aerospace reported an operating profit of 13.8 billion won ($12.16 million) in the second quarter, down 40.5 percent from the previous year due to increasing manufacturing costs for aircraft turbine engines and growing costs for its risk and revenue sharing platform.

But the nation's largest defense parts provider is expected to improve its profitability in the latter half of the year when the profit of Hanwha S&C is reflected on that of the parent company, according to experts.

“Hanwha Aerospace's profit is guaranteed from the third quarter of this year in reflection of the effect for the acquisition of the IT service arm,” said Cho Chul-hee, an analyst from Korea Investment & Securities. “The company's stock value will improve gradually in the fourth quarter, driven by seasonal factors in the defense industry.”

As of Aug. 1, Hanwha Systems, the military weapons and surveillance system manufacturing arm of Hanwha Aerospace, acquired Hanwha S&C. The latter has been cited as a stable source of revenue for the nation's eighth-largest conglomerate. Hanwha S&C posted 11 billion won in operating profit in the fourth quarter of last year.

The company also expressed optimism for its profit rebound in the latter half of the year, citing growing demand for its geared turbo fan engines and the improving profitability of its major affiliates ― such as Hanwha Defense and Hanwha Systems.

A Hanwha official said the company is realigning its business structure in a way to reduce risks and generate a more stable source of revenue, so expectations are that the company will perform better in the latter half of this year.

“Hanwha's defense business is putting priority on improving its profitability, and reflecting on the strategy, we are expected to improve our profits in the forthcoming quarters this year,” an official from the company said Tuesday.

“But market uncertainty remains evident here and abroad in the latter half of the year. We plan to continue strengthening our sales power in a bid to brace for growing market uncertainty here and abroad.”

Amid the lingering expectation for its profit rebound, Hanwha Aerospace closed Tuesday at 23,500 won on the Seoul bourse, up 1,150 won or 5.51 percent from the previous trading day.

Mirae Asset Daewoo maintained Tuesday Hanwha Aerospace's target stock value at 32,300 won.

The securities company said the Hanwha affiliate would report an estimated operating profit of 26.8 billion won in the third quarter, up 119 percent from a year ago.

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