Hanwha Techwin Co., the defense unit of South Korean conglomerate Hanwha Group, is emerging as an industry leader following the acquisition of Samsung Group’s defense branches last year. The company’s performance is expected to improve significantly this year, thanks to a number of large-scale defense orders, and its shares are projected to beat out other defense stocks.

On Tuesday, shares of Hanwha Techwin closed at 43,200 won ($37.7), jumping 21.5 percent from the first trading day of 2016. Until the end of January, the company’s shares were priced in the lower 30,000 won range before reaching over 40,000 won this month. Over a period of one year and three months, shares of Hanwha Techwin almost doubled from when it hit the lowest of 21,250 won on Jan. 7, last year. The company’s stock struggled from a downfall after it merged as a unit under Hanwha Group from Samsung Group in November, 2014, along with other units including Samsung General Chemicals Co. and Samsung Total Corp. Shares plunged due to acquisition burden on Hanwha Group.

On Wednesday, Hanwha Techwin shares closed 1.39 percent lower at 42,600 won.

The recent surge in Hanwha Techwin shares, meanwhile, is largely attributed to its affiliate Hanwha Thales Co., a total solution provider of defense electronics, which was selected as the preferred bidder to develop active electronically scanned array (AESA) radar for South Korean fighter jets. AESA radar is a core defense equipment that is needed to complete a mission such as an air battle and helps distinguish an enemy’s fighter jets. The Defense Acquisition Program Administration (DAPA) on Wednesday announced that it has selected Hanwha Thales as the preferred bidder for the project to develop AESA radar to be loaded on indigenous KF-X fighter jets.

The announcement came as a surprise as LIG Nex1 Co., a leading defense company in Korea, was largely predicted by the industry to be selected as the preferred bidder of the radar development project. LIG Nex1 had been considered as the most potential preferred bidder as it dominates the country’s guided weapons industry that involves the development of AESA radars. The industry is seen as a promising sector for its future growth potential for many defense-related companies. Hanwha Techwin being selected as preferred bidder for the development project is seen as significant for the company considering that the defense ministry is planning on expanding its spending on missile systems including guided missiles.

Prospect is bright for Hanwha Techwin and its affiliates as they are expected to see synergy in various businesses and projects. One of Hanwha Group’s major projects involves developing guided missiles. The conglomerate is also involved in the development of long-range surface-to-air-missiles (L-SAM), which is known as the Korean version of United States’ anti-ballistic missile system Terminal High Altitude Area Defense (THAAD). In 2002, the conglomerate secured the capability to independently develop guided missiles as the first in the country when it was selected as the prime contractor to develop the country’s largest artillery rocket system called Chunmoo.

Also, a key business area of Hanwha Thales is developing research vehicles and radars. Doosan Defense Systems & Technology Co., in which the company acquired recently, also has dominant control of the country’s guided missile projectile sector, which can create synergy with the group’s other defense-related businesses.

Lee Sang-woo, an analyst at Eugene Investment & Securities Co., said that in the case of Hanwha Thales, it has already delivered multi-purpose radars of guided missiles such as Chunma and Chungoong and has been in charge of developing L-SAM multi-purpose search radars. The analyst said that the business capacity of Hanwha Thales and its affiliates has been undervalued and that they should be rated more highly.

Local brokerage firms, meanwhile, project that Hanwha Techwin - boosted by many defense and engine projects - will raise 17.1 billion won in operating profit in the first quarter of this year, up 65.9 percent from the same period in the previous year. The company is expected to see sales of 627.2 billion won, up 4.2 percent over the same period.

By Kim Tae-joon

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