[Edaily Reporter Shin Ha-yeon ] On the 8th, Yuanta Securities Korea projected that KOREA AEROSPACE INDUSTRIES(047810)’s third-quarter earnings this year would fall short of market expectations due to delays in the delivery of Light Armed Helicopters (LAH). However, the firm forecast that medium- to long-term growth would continue as the flow of domestic and international orders improves starting in the fourth quarter and the first export contract for the Korean-made KF-21 fighter jet becomes a reality. While maintaining a “Buy” rating, the firm lowered its target price from 236,000 won to 182,000 won to reflect the decline in average valuations among global defense companies.

Baek Jong-min, an analyst at Yuanta Securities Korea, explained, “This is due to delivery delays for the LAH that began in the second quarter and continued into the third quarter,” adding, “However, we understand that the company partially offset the revenue shortfall by delivering one additional KF-21 unit compared to the original schedule.”

KOREA AEROSPACE INDUSTRIES’ third-quarter consolidated revenue is estimated at 1.0941 trillion won, a 55.8% increase year-over-year, while operating profit is projected to rise 28.1% to 77.1 billion won. Revenue falls 12.8% short of the market consensus of 1.2552 trillion won, and operating profit is 5.9% below the consensus estimate of 81.9 billion won. The operating profit margin is projected to be 7.0%, down 1.6 percentage points year-over-year but an improvement of 2.9 percentage points from the previous quarter.

The primary cause of the weak performance is the delay in LAH deliveries. The firm analyzed that production and delivery disruptions, which began in the second quarter, continued into the third quarter, resulting in a partial deferral of the originally expected revenue from the domestic business. However, it was determined that the increase in KF-21 deliveries—one unit more than originally planned—partially offset the impact of the decline in earnings.

Researcher Baek stated, “LAH production appears to have returned to normal as of October.” Analysts expect domestic business revenue to recover in the fourth quarter as production normalizes.

Profitability is expected to vary by business segment. Due to the strong won, profitability in the aircraft components business is projected to decline slightly compared to the previous quarter. In contrast, profitability in the finished aircraft export business is expected to improve as lower projected costs are reflected.

In particular, the gross profit margin (GPM) for the finished aircraft export business in the third quarter is estimated at 15%. This represents a significant improvement compared to the 5% range recorded in the second quarter. Despite exchange rate pressures, cost improvements in the finished aircraft export segment are expected to underpin overall profitability.

Starting in the fourth quarter, the trend in domestic and international orders is expected to reverse. Domestically, a contract for approximately 100 units of the LAH follow-on mass production batch is scheduled to be signed before the end of the year. Overseas, the project to supply 16 KF-21s to Indonesia is understood to have entered the final stages of negotiation.

Analyst Baek stated, “The trend in domestic and international orders is expected to reverse starting in the fourth quarter,” adding, “Domestically, a contract for approximately 100 LAH follow-on production units is scheduled to be signed by the end of the year, and internationally, the project for Indonesia to procure 16 KF-21s is understood to have entered the final stages of negotiation.”

In particular, the KF-21 procurement contract with Indonesia is expected to be signed in November. If the contract is finalized, it will be significant as it could mark the first overseas export of the KF-21. The report also projected that this would highlight the potential for expanding exports to Southeast Asia and the Middle East.

Defense cooperation with the United Arab Emirates (UAE) was also cited as a key variable. Analysis indicates that the KF-21 joint development and procurement project accounts for a significant portion of the $35 billion defense cooperation initiative currently being pursued with the UAE. It is expected that related projects will take shape in the near future.

Researcher Baek stated, “The KF-21 joint development and acquisition project, which accounts for a significant portion of the $35 billion defense cooperation with the UAE, is also expected to take shape in the near future.”

They predicted that once the first export contract for the KF-21 is signed, the potential for expansion to other countries will also increase. Yuanta Securities Korea highlighted the possibility of the Philippines acquiring up to 40 KF-21s and Malaysia acquiring approximately 30.

The FA-50, the company’s existing flagship export model, is also pursuing additional orders in overseas markets. It is understood that discussions are currently underway regarding the acquisition of approximately 20 units by Morocco, 36 by Egypt, approximately 20 by Peru, and 18 as part of Malaysia’s second-phase project.

The company is projected to enter a phase of substantial revenue growth starting this year. Yuanta Securities Korea forecasts that KOREA AEROSPACE INDUSTRIES’ consolidated revenue for this year will reach 5.2483 trillion won, a 42.0% increase from the previous year, while operating profit is expected to rise 45.8% to 392.4 billion won. For next year, the firm estimates revenue will rise 33.9% to 7.0259 trillion won, and operating profit will increase 66.0% to 651.5 billion won.

However, the firm adjusted its annual earnings forecasts to reflect uncertainties stemming from production disruptions. It lowered this year’s revenue forecast by 8.7% and the operating profit forecast by 19.1% from previous estimates. Next year’s operating profit forecast was also reduced by 5.8%.

Analyst Baek stated, “Considering the high reliance on overseas parts and stringent certification standards characteristic of the fighter jet business, performance disruptions may occur in the future.” He added, “However, since the company’s scale has expanded as it shifts toward mass production, robust year-over-year growth is expected to continue despite some production disruptions.”

The target price reduction reflects not only the adjustment to earnings forecasts but also the decline in the average valuation of global defense companies. Yuanta Securities Korea calculated a target price of 182,000 won by applying a price-to-earnings ratio (PER) of 25—the average for global peers from 2026 to 2028—to the estimated 2028 net income attributable to controlling shareholders of 710 billion won. This represents an upside potential of approximately 49% compared to the closing price of 121,800 won on the 7th. The firm maintained its “Buy” investment rating.

Discussions regarding privatization were also assessed as a factor that could support the stock price. Analysts note that since discussions on the privatization of KOREA AEROSPACE INDUSTRIES are expected to take place during the parliamentary audit scheduled for the 20th, market attention may once again focus on this issue.

Analyst Baek stated, “Discussions on privatization are acting as a factor supporting the stock price from the downside,” adding, “With related discussions scheduled for the National Assembly audit on October 20, attention is expected to focus on this issue once again.”