[Click eStock] "Sphere's Aerospace Special Alloy Sales Soar... Performance to Take Off in Second Half"

Sphere (347700) is rapidly expanding its scale, with a focus on the aerospace business. In the second quarter, sales of special alloys increased by approximately five times compared to the same period last year. With mass production of launch vehicles by global aerospace companies and the commencement of Indonesia's nickel project in the second half, it is projected that Sphere's performance growth will be further strengthened.

On August 18, Meritz Securities analyzed that the growth of Sphere’s special alloy business for aerospace will continue, and that the full-scale mass production of launch vehicles by global clients will significantly expand the company's long-term performance growth base.

Sphere’s consolidated sales in the second quarter reached 77.1 billion won, up 308.6% year-on-year. On the other hand, operating profit was 1.7 billion won, which represents a 20.4% decrease. While revenue surged, the decline in operating profit was attributed to a higher proportion of sales coming from raw materials with relatively lower margins compared to the more profitable processed products.

In fact, sales in the special alloy division of the aerospace business in the second quarter skyrocketed to 74.2 billion won, a 484.6% increase compared to the same period last year. Researcher Jeong Jisoo at Meritz Securities explained, “The main driver behind the company’s growth in scale has been the special alloy segment of the aerospace business.”

The deterioration in profitability was caused by increased cost burdens. As the proportion of raw material sales within special alloys grew, cost of goods sold ratio climbed to 89.0% in the second quarter of this year from 73.6% in the same period last year. In addition, one-time expenses such as stock compensation and bonuses for executives and employees were reflected in selling, general, and administrative expenses, further weighing on operating profit.

Nevertheless, Meritz Securities expects the upward trend in sales to accelerate from the second half. Following the jump in special alloy sales from 32.2 billion won in the first quarter to 74.2 billion won in the second, projections are for the figure to expand further to 77.4 billion won in the third quarter and 86.9 billion won in the fourth quarter.

Accordingly, the brokerage estimates full-year consolidated sales to increase by 210.7% year-on-year to 297.1 billion won, with operating profit growing by 70.3% to 15.4 billion won.

The expansion of launch vehicle businesses by global aerospace companies is also seen as a key variable. Sphere is expanding its special alloy business related to new launch vehicles for major clients. If these launch vehicles move through the commercialization stage into full-scale mass production, it is expected that the supply of existing processed special alloy products will also increase significantly.

Researcher Jeong commented, “Sphere is expanding its special alloy business for client launch vehicles, and if the new launch vehicles enter the commercialization stage and mass production begins in earnest, revenue from existing processed special alloys is projected to increase substantially.”

If the launch vehicle mass production schedule is brought forward ahead of expectations, Sphere’s performance estimates could be revised upward. Going forward, order receipts and mass production schedules in the aerospace sector will be key factors influencing the pace of Sphere’s performance growth.

The Indonesian nickel business is also emerging as a new growth axis. The Indonesia ENC project, in which Sphere is participating, completed trial operations by June and plans to ramp up production in earnest starting in October.

Researcher Jeong stated, “If the Indonesia ENC project begins to ramp up production in October as planned, it is expected that, separately from equity-method gains through SNC (Sphere Nickel Cobalt), sales related to nickel raw material supply, amounting to about 200 billion won, will be fully reflected in earnings from next year.”

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