[Edaily Reporter Shin Ha-yeon ] On the 6th, the independent research firm Value Finder projected that DYC(310870)would see its core automotive parts business rapidly improve in profitability, while its defense subsidiary would establish itself as a new growth driver. In particular, the firm highlighted that the company is the first parts supplier in which LIG D&A, a leading integrator of guided weapon systems, has made an equity investment. No investment rating or target price was provided.
Jeon Woo-bin, a senior researcher at Value Finder, stated, “DYC demonstrated its earnings resilience by achieving its highest quarterly profit margin in the first half of this year solely through a recovery in volume in its core automotive business, and we believe a floor for earnings has been established for the second half as the range of vehicle models adopted by existing clients continues to expand.”
DYC is a manufacturer of precision metal-machined components for automotive powertrains. Its customer base includes global automakers such as Mercedes-Benz, BMW, Audi, Porsche, Stellantis, and GM. Through its subsidiary DYC Dynamics, in which it acquired a 100% stake last year, the company also operates a defense business producing guided weapon components, such as new-generation components and parts for axial thrusters used in missile attitude control systems.
This year’s improved performance has been driven primarily by the company’s core automotive business rather than its defense operations. In the second quarter, consolidated revenue rose 41.9% year-over-year to 36.5 billion won, while operating profit surged 695% to 3.7 billion won. The operating profit margin stood at 10.2%. For the first half of the year, cumulative revenue reached 69.7 billion won and operating profit totaled 6.3 billion won, representing increases of 34.5% and 115%, respectively. Net income also rose 192% to 5.7 billion won.
Researcher Jeon explained, “We believe this was driven by rising capacity utilization and operating leverage, as mass production of 10 types of shafts for BMW vehicles began in earnest last March and supply volumes to Stellantis increased significantly.” In fact, the company-wide capacity utilization rate rose from 62.2% in 2024 to 66.9% last year and further to 71.3% in the first half of this year.
In particular, analysts note that the increase in production volume is directly translating into improved profitability. Since the precision metal processing business has a high proportion of fixed costs—such as equipment and labor—the structure is such that unit costs decrease as production volume increases using the same equipment. The operating profit margin for automotive parts also improved from 6.0% in the first half of last year to 9.6% in the first half of this year.
Researcher Jeon noted, “Of the 10.8 billion won increase in second-quarter revenue compared to the same period last year, automotive drivetrain components and other sales accounted for 8.2 billion won, or 75.8 percent, while the defense sector’s contribution was approximately 2.6 billion won, driven by the effect of consolidation.” He added, “It appears that the primary driver of the strong growth in the first half was the core automotive business rather than the defense sector.”
However, exchange rates are expected to be a variable in the third quarter. Given the company’s business structure, which relies heavily on exports, a strong won could have a negative impact on earnings. Analyst Jeon said, “We estimate that a decline in the exchange rate in the third quarter will have a somewhat negative impact on DYC’s earnings, given its high export ratio.”
In the medium to long term, the defense sector is expected to be the key driver of a valuation reassessment. DYC Dynamics manufactures fuse components and parts for missile attitude control systems. Unlike system equipment used over the long term—such as launchers or radars—these products are consumable parts used during the launch of guided missiles. One fuse is required for each artillery shell or guided missile, and components of the attitude control system are also mounted on the missile body and are not reused.
Consequently, large-scale export contracts secured by system manufacturers do not immediately translate into DYC’s earnings. Demand for components does not materialize in earnest until after a weapons system has been deployed, specifically when orders are placed to replenish stocks following the initial interceptor launches and consumption during training and combat operations.
Researcher Jeon emphasized, “As the deployment base for Cheon-gung II expands, particularly in the Middle East, orders for consumable parts are bound to follow with a time lag,” adding, “The medium- to long-term momentum for valuation re-rating lies in the interceptor replenishment cycle.”
A guided weapons industry analysis report published by Value Finder on the same day also highlighted this structure. According to the report, while the ground-based air defense system market is projected to grow at an average annual rate of 8.7% from 2026 to 2034, the expected growth rate for the surface-to-air missile market is 4.7%. This discrepancy stems from the time lag between the initial deployment of air defense systems and the subsequent generation of demand for initial interceptor missiles and replenishment stocks during their operational life. ValueFinder views the rapidly expanding air defense systems market as a leading indicator of future demand for interceptor missiles and analyzed that as the installed base grows, the growth rate of the interceptor missile market is likely to exceed previous forecasts.
LIG D&A’s equity investment is also considered significant in this context. In May, LIG D&A participated in a third-party private placement worth 2 billion won, securing a 5.63% stake in DYC and becoming its third-largest shareholder. DYC has reinvested the entire amount raised into a capital increase for its subsidiary, using the funds for capital expenditures in its defense sector.
This marks the first instance in which a guided missile systems integrator has directly acquired a stake in a parts supplier. While there is a time lag before a systems integrator’s large-scale export contracts translate into sales for parts suppliers further down the supply chain, this move can be interpreted as an effort to strengthen the supply chain with an eye toward future expansion of guided missile mass production volumes.
There is also spare production capacity. The utilization rate of DYC Dynamics’ defense division stood at around 48% in the first half of this year. Research Analyst Jeon explained, “With the current utilization rate of 48%, production volume can be expanded by nearly twofold without the burden of additional capacity expansion.” Based on contracts and delivery plans signed with existing customers, the company plans to supply related components sequentially through 2030.
The stock is also considered to be undervalued. Analyst Jeon emphasized, “I believe the current valuation, at a price-to-earnings ratio (PER) of 4.5x, does not reflect the value of DYC’s defense business at all,” adding, “As the deployment base for the Cheongung-II is expanding, particularly in the Middle East, we expect orders for guided missiles—which are consumable items—to increase accordingly in the future.”