Shares of Hanwha Aerospace, South Korea’s largest defense firm, experienced a significant downturn on Tuesday, , falling more than 6% following the release of its fourth-quarter earnings report. While annual revenue reached record levels, the company’s Q4 results fell short of market expectations, particularly in pre-tax and operating profit.
The company reported fourth-quarter revenue of 8.33 trillion South Korean won, a 72.56% increase year-on-year. However, this figure missed LSEG estimates of 8.64 trillion won. Pre-tax profit plummeted 72% to 602 billion won, substantially below the anticipated 1.2 trillion won. Operating profit also declined, dipping 16% to 753 billion won. A relative bright spot was net profit, which, despite a 54% decrease to 934 billion won, exceeded LSEG’s projection of 717.20 billion won.
Full Year Performance
Despite the disappointing fourth quarter, Hanwha Aerospace reported a strong overall performance for . Annual revenue soared 137% year-on-year to 26.61 trillion South Korean won, although it marginally missed estimates of 27.01 trillion won. Annual pre-tax profit decreased slightly to 2.15 trillion won, down 19% from the previous year and below expectations of 2.73 trillion won.
The company highlighted that marked its fourth consecutive year of record operating profits. Operating profit rose 75% year-on-year to 3.03 trillion won, while net profit declined 16% year-on-year to 2.14 trillion won, surpassing expectations of 1.65 trillion won. This divergence between operating and net profit suggests factors beyond core operational performance influenced the bottom line.
Share Performance and Market Position
Despite the recent dip, Hanwha Aerospace shares have demonstrated substantial growth in recent years. Year-to-date, the stock has climbed 18.92%. This follows a remarkable rally, which saw shares increase by 193%, building on a 154% jump in . The company currently holds the 11th largest market capitalization on the Kospi, valued at approximately $42.03 billion.
The surge in demand for Hanwha’s defense platforms, fueled by geopolitical events such as the Russia-Ukraine war, has been a key driver of its recent success. The company has secured significant orders from multiple European countries, including Poland, Estonia, Romania, and Norway, for its K9 Thunder self-propelled howitzer and Chunmoo multiple launch rocket systems.
Earnings Shock and Valuation
The fourth-quarter results have been described by some analysts as an “earnings shock,” given the substantial miss on pre-tax and operating profit. According to supplementary research, the company attributed the weaker Q4 performance to shifting government budget execution patterns globally and a temporary increase in costs.
Currently, Hanwha Aerospace is trading at an EV/EBITDA multiple of 13x, a price-to-earnings (P/E) ratio of 27.5x, and a price-to-book (P/B) ratio of 5.4x, based on consensus earnings estimates. These multiples are broadly in line with the company’s average valuations over the past two years (EV/EBITDA of 13.4x, P/E of 26.6x, and P/B of 5.0x), suggesting the market reaction reflects genuine concern about the near-term outlook rather than a fundamental re-rating of the company’s prospects.
Analysts suggest that another miss in the first or second quarter of could trigger a more substantial sell-off. The company’s ability to regain investor confidence will likely depend on its ability to demonstrate a return to consistent earnings growth and to effectively manage the factors that contributed to the Q4 shortfall.
While the long-term outlook for the defense industry remains positive, driven by increased geopolitical tensions and defense spending, Hanwha Aerospace’s recent performance underscores the importance of consistent execution and the potential for unexpected headwinds. Investors will be closely watching the company’s next earnings reports for signs of a recovery and a return to the strong growth trajectory it has established in recent years.
