Shinhan Securities, LIG ​​D&A target price ↓… “Reflection of slowing profitability and sanctions variables”

On the 9th, Shinhan Investment & Securities lowered the target stock price for LIG Defense & Aerospace [079550] (LIG D&A) from KRW 980,000 to KRW 430,000, saying, "The slowdown in profitability is expected to continue until 2027, and uncertainty in domestic orders has increased due to sanctions by the Defense Acquisition Program Administration."

The investment opinion of ‘buy’ was maintained. The closing price of the previous trading day was 326,000 won.

Researcher Lee Dong-heon and Lee Ji-han analyzed in the report that day, "LIG D&A's operating profit in the third quarter fell 34.6% below the consensus (market average forecast)," and added, "Profitability slowed due to an increase in the proportion of development and an increase in current development costs."

On the 6th, LIG ​​D&A announced that its consolidated operating profit in the third quarter of this year was provisionally calculated to be KRW 67.6 billion, a 24.6% decrease from the same period last year. Sales amounted to KRW 1.0713 trillion, an increase of 2.1% compared to the same period last year. The net loss was 8.2 billion won, turning into a deficit.

Researcher Lee and others said, "Excluding loss reserves of about 9 billion won and losses from Ghost Robotics (an American robotics company acquired by LIG D&A) of about 10 billion won, operating profit is estimated to be 86.6 billion won, an increase of 8.1%. However, due to foreign exchange losses and Gumi facility damage losses of about 20 billion won, controlling net profit also recorded a loss of 4.6 billion won, turning into a deficit."

The outlook for next year is not bright either.

These researchers judged that “the uncertainty of new domestic orders is increasing and the recovery in profitability is slow due to the increased proportion of development.”

Moreover, on the 20th of last month, the DAPA imposed sanctions on LIG D&A, which is accused of giving bribes worth hundreds of millions of won to DAPA employees during the weapons development bidding process, restricting its bid participation for two years.

In response, the company said, "We regret imposing sanctions based solely on the facts of the indictment while legal procedures are in progress," and announced that it would appeal the decision and file a request for suspension of execution.

Researcher Lee and others cited the dismissal of the suspension of execution, cancellation of designation as a defense company, and prolonged delivery delays linked to collaborators as risk factors that may occur in the future, and said, "We maintained our buy opinion, but lowered the estimate and premium and lowered the target stock price."