M&C Solution Left Behind in Defense Stock Rally...Recovery Hinges on Orders and Stake Sale [Click e-Stock]

Sluggish Performance Due to Order Delays in the First Half
Stake Sale Talks Collapse, But Possibility for Resumption Remains
Shareholder Returns Highlighted Through Share Buybacks and Cancellations

There are growing assessments that M&C Solution has lagged behind in the defense industry rally. The company’s share price has continued to underperform due to delays in orders for major upstream industries such as the K2 main battle tank and K9 self-propelled howitzer. In addition, investor sentiment has weakened further following the collapse of negotiations to sell the largest shareholder's stake.

On September 3, KB Securities maintained its "Buy" recommendation for M&C Solution but lowered its target price by 20% to 32,000 won. The previous day's closing price was 17,700 won.

M&C Solution's performance remains sluggish. In the first half of this year, sales fell by 7.5% year-on-year to 159.6 billion won, while operating profit declined by 10.8% during the same period to 20.5 billion won. The delays in orders for upstream industries, including the K2 tank and K9 self-propelled howitzer, also led to postponed orders for related components.

However, the order environment is gradually improving. Hanwha Aerospace succeeded in winning an order for self-propelled guns from Spain, and Hyundai Rotem placed orders for K2 tank parts, presumed to be for export to Peru. Jeong Dongik, a KB Securities analyst, explained, "M&C Solution's earnings will gradually improve," and added, "Given the company’s high proportion of imported parts, the recent decline in the exchange rate is also a positive factor."

The stake sale issue also remains a variable. The largest shareholder selected Korea Investment Partners as the preferred negotiation partner to promote the sale of its stake, but announced last month that discussions ended without results. Factors making the decision difficult seem to include the falling share price, delayed orders, sluggish performance, and expectations for an end to the war.

Nevertheless, the failed sale does not necessarily mean the end. KB Securities pointed out that as most negative factors have been largely priced in, if the sale is attempted again, the probability of a successful deal may actually increase. A lower share price could also reduce the acquisition cost burden for potential buyers.

The company also introduced a shareholder return measure. In June, M&C Solution decided on a 200% bonus issue, and the new shares were listed at the end of July. Then, at the end of last month, it announced plans to buy back and cancel treasury shares worth 15 billion won. The company will acquire 996,000 shares on the open market and cancel them by March next year. Analyst Jeong commented, "While these efforts aim to smooth the sale process, ordinary investors will also share in the benefits."

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