LS Securities "LIG D&A needs to confirm suspension of DAPA sanctions and increase in orders"... Target↓

On the 11th, LS Securities [078020] presented conditions for a rebound in the stock price of LIG Defense & Aerospace [079550] (LIG D&A), including citing the court's suspension of enforcement of sanctions by the Defense Acquisition Program Administration and a surge in new orders in the fourth quarter.

The investment opinion was maintained at 'buy' and the target stock price was lowered from 1.3 million won to 600,000 won. The previous day's closing price was 339,000 won.

On the 20th of last month, the DAPA imposed sanctions restricting LIG D&A's ability to participate in bidding for the next two years, claiming that it had paid bribes worth hundreds of millions of won to DAPA employees during the weapons development bidding process. In opposition to this, LIG ​​D&A filed a lawsuit to the court to suspend the execution of administrative disposition and to cancel it.

LIG D&A's stock price fell a total of 38.14% from 548,000 won to 339,000 won until the previous day after sanctions by the DAPA.

Researcher Lee Jae-kwang presented the court's decision to suspend the execution of administrative disposition as the first condition for a stock price rebound and said, "If it is upheld, the bidding restrictions scheduled for the 21st will not begin, and the decision will be made according to the ruling of the ongoing criminal trial."

The criminal trial concerns charges of bribery by LIG D&A executives to DAPA evaluators.

He explained, “Because this was a disposition taken before the first criminal trial, the burden of proof on the DAPA is high, and in case of dismissal, the court effectively assumes guilt,” and “Considering that irreparable damage, such as loss of long-range air-to-air guided missile project rights, is expected, we believe there is a high possibility of a decision to cite a suspension of execution.”

Researcher Lee cited an increase in new orders in the fourth quarter as the second condition for a stock price rebound.

He said, “Demand for air defense systems is still high due to the wars in Ukraine and Iran,” and added, “It is understood that not only are there requests for additional and early orders from existing contracting countries, but also requests for purchases are being made from countries such as Kuwait and Qatar.”

The reason for lowering the target stock price was explained as “due to the decline in the average valuation of the global defense industry.” He added, “We maintain our investment opinion as a buy because we believe there is a high possibility that the stock price will have a rebound momentum in the future.”