"Even After the US-Iran War Ends, Defense Stocks Will Keep Rising" [Click e-Industry]

Expansion of Middle Eastern Orders Is Inevitable

"Stocks Expected to Break Out of Undervalued Range"

Despite ongoing noise, the end of the war between the United States and Iran is now in sight. Some predict that the stocks of defense companies, which have been on an upward trajectory, will now enter a downward phase. However, some analysts argue that this concern only reflects part of the picture for the Korean defense industry. They point out that, after the war, many countries—especially those in the Middle East—are likely to reduce their military dependence on the United States, which could further strengthen export pipelines in the region.

On June 16, DS Securities assessed that the end of the Iran war could actually present an opportunity for the Korean defense industry. For example, Hanwha Aerospace has been in talks with Saudi Arabia's Ministry of National Guard (MNG) regarding the acquisition and modernization of ground weapons such as armored vehicles and self-propelled howitzers. While specific discussions were reportedly suspended due to the war, it is expected that negotiations will resume and new orders will be possible once the conflict ends.

Hyundai Rotem also discussed the export of approximately 250 K2 tanks to Iraq. Negotiations are expected to resume after stability is restored in the Middle East. Given that the development of the K2ME, a Middle East-specific variant, has already been completed, analysts believe there is a high possibility of contracts being finalized either in the second half of this year or the first half of next year.

LIG Defense & Aerospace, Hanwha Aerospace, and Hanwha Systems are anticipated to advance export negotiations for the Cheongung-II system with several Middle Eastern countries. New exports are expected to Kuwait and Qatar, both of which suffered direct attacks from Iran; additional orders from existing customers are also anticipated.

Korea Aerospace Industries is also reportedly in talks with the United Arab Emirates (UAE) and Saudi Arabia regarding the export of KF-21 fighter jets and the international co-development of fifth- and sixth-generation fighter jets. It was explained that the UAE’s withdrawal from the Rafale F5 project last April indicates a move to consider alternative platforms. This is the context for expectations that, after the war ends, there will be further discussions on joint development plans with Korean defense companies.

Kang Taeho, a researcher at DS Securities, stated, “Even after the war ends, Iran’s missile capabilities will remain, and Hezbollah and Houthi forces will still pose threats,” adding, “The demand for enhanced air defense capabilities in the Middle East will continue structurally.”

DS Securities believes this is a time when the valuation appeal of the defense industry is coming to the forefront. The company projected that Hanwha Aerospace and Hyundai Rotem would have forward price-to-earnings ratios (PER) of 18.4x and 16.5x, respectively, next year—levels that are undervalued compared to the overseas leading group average of 26x for ground defense companies.

Researcher Kang commented, “Considering Korean defense companies’ investments in facilities, competitiveness in delivery timelines, and the accelerated establishment of local production systems, current prices are at a discount,” further predicting, “As discussions on Middle Eastern orders intensify after the war ends, defense sector stocks are likely to shift into an upward trend in the second half of the year.”

This content was produced with the assistance of AI translation services.