Korea Aerospace Industries is flying high.
The country’s sole aircraft manufacturer is enjoying its best ever year, with solid first-half earnings and its share price up 150 percent since January, and analysts forecast a positive outlook for the second half.
This is the result of a profit increase in the firm’s exports of military planes, production of aircraft components and winning of various defense deals, which are the three pillars of the company’s revenue sources, analysts said Wednesday.
“KAI is expected to secure its growth momentum in the latter half of the year as the company signed a series of defense contracts as well as its flagship planes such as light combat aircraft FA-50, which will help it continuously generate profits,” Kim Ik-sang, analyst at HI Investment & Securities said.
KAI’s key export offerings are the FA-50 and the T-50 fighter-trainer jet, developed in partnership with Lockheed Martin. In the commercial aviation sector, it supplies key parts and frames to Boeing and Airbus.
Later this year, it is also expected to sign deals worth at least 7 trillion won ($5.9 billion) related to the Korea Fighter Experimental program, a project to develop an indigenous fighter jet by 2025.
The South Gyeongsang Province-based firm reported its best-ever sales during January-June period of the year, at 1.3 trillion won, up 18 percent from the same period of 2014. Its operating profit also soared to 130 billion won.
“The positive earnings surprise in the first half of the year stemmed from exports of T-50 Golden Eagle supersonic trainers and the FA-50 light combat aircraft, which began in earnest, and productivity improvements in profit-making civil aircraft parts,” said Cho Chul-hee, an analyst at Korea Investment & Securities.
Buoyed by victories in bids for defense contracts from the Korean government, the company is expected to generate even more revenue later this year.
In June, KAI signed two contracts with the Korean government worth a combined 1.6 trillion won to develop a light armed helicopter and a light civilian-use helicopter.
“KAI’s second-half performance is expected to improve as the government’s budget execution will come in the fourth quarter,” Cho said.
With a growing expectation for the new projects, KAI’s share price has been on a sharp upswing since the beginning of this year.
KAI shares jumped to 100,500 won as of Wednesday on the Korea Exchange, up from 39,800 won on Jan. 2 this year. The figure is nearly seven times the value at its initial public offering in 2011.
The plane-maker’s market capitalization reached 9.7 trillion won, ranking 23rd on the KOSPI followed by large conglomerates SK and LG.
Analysts said the soaring stock price shows investors’ growing preference for companies in defense industry for less risky investment amid a volatile stock market because their primary client is the government.
Now KAI’s president and CEO Ha Sung-yong is seeking to strengthen export of defense hardware and aviation parts to lower its reliance on domestic market and diversify its revenue source.
So far, it has sold T-50 and KT-1 basic trainer aircraft to Iraq, Peru and the Philippines and started to produce wing bottom panels for the A320 this year.
“KAI aims to generate 2 trillion won by exporting planes and fuselage components which accounts for 60 percent of the company’s goal for the total revenue of 3 trillion won,” the CEO said.
By Park Han-na (hnpark@heraldcorp.com)
