Hanwha Aerospace’s Profit Recovery: A Turnaround Fueled by Defense Exports and Operational Efficiency

Hanwha Aerospace Co., Ltd. marked a significant milestone in Q1 2025, posting a net profit of 209.4 billion won (US$146.8 million) after years of modest gains and periodic losses. While the figure fell short of analysts’ average estimate of 319.2 billion won, the company’s 278.5% year-on-year sales surge to 5.48 trillion won and a 3,068% spike in operating profit to 560.8 billion won underscore a dramatic turnaround. This article dissects the drivers behind Hanwha’s recovery, evaluates risks, and assesses its investment potential.

Key Drivers of Profit Recovery

1. Defense Export Boom
   The Ground Defense Division emerged as the growth engine, with sales leaping to 1.1575 trillion won and operating profit surging to 301.9 billion won—a stark reversal from a 3.9 billion won loss in Q1 2024. This turnaround was driven by:
2. European military contracts: Increased exports of K9 artillery and Cheonmu systems to European nations bolstering defense capabilities amid geopolitical tensions.
3. Productivity gains: Operational efficiencies, including optimized supply chains and economies of scale from higher production volumes.

4. Favorable exchange rates: A weaker won relative to the euro and US dollar amplified revenue from foreign sales.

5. Subsidiary Contributions
   Newly incorporated subsidiary Hanwha Ocean contributed 3.1431 trillion won in sales (up 38% YoY) and 258.6 billion won in operating profit (up 389%), while Hanwha System reported a 27% sales increase to 690.1 billion won. These divisions highlight Hanwha’s diversification into maritime and advanced defense tech, reducing reliance on traditional aerospace markets.

6. Operational Turnaround
   The net profit turnaround from a 12.6 billion won loss in Q1 2024 to profitability in 2025 reflects aggressive cost management. Even after accounting for discrepancies in reported net profit figures (209.4 billion vs. 86.6 billion won), the company’s ability to eliminate losses signals improved financial discipline.

Challenges and Risks

1. Valuation Concerns
   Despite strong operational performance, the 209.4 billion won net profit fell 34% short of expectations. Analysts flagged potential one-time costs, tax impacts, or overestimation of demand. Additionally, the rights offering of 2.3 trillion won—designed to fund growth—faced temporary halts due to valuation concerns, as noted by Smartkarma’s bearish analyst Sanghyun Park.

2. Execution Risks
   The capital increase process, now pending regulatory approval, requires flawless execution to avoid shareholder dilution. The July 2025 timeline for shareholder subscriptions and public offerings leaves the company vulnerable to market volatility or regulatory delays.

3. Dependence on Defense Exports
   While defense exports drove growth, geopolitical shifts or trade disputes could disrupt demand. Hanwha’s reliance on European and Middle Eastern markets amplifies this risk.

Analyst Sentiment and Valuation Metrics

• Smartkarma Smart Score: A 3.4 overall rating reflects top-tier Growth (5/5) and Momentum (5/5) scores, driven by innovation and market share gains. However, low Value (2/5) and Dividend (2/5) scores suggest the stock is not undervalued and offers limited income appeal.
• Analyst Consensus: 23 “buy” ratings vs. 2 “hold” ratings highlight optimism, but the Resilience score of 3/5 warns of moderate stability amid macroeconomic risks.

Conclusion: A High-Growth Play, But Proceed with Caution

Hanwha Aerospace’s Q1 2025 results signal a strategic shift from survival to expansion, powered by defense exports and operational excellence. The 278.5% sales surge and 3,068% operating profit jump validate its position as a global defense supplier. However, investors must weigh this against risks like valuation stretch, execution hurdles for the rights offering, and geopolitical dependencies.

Key data points support cautious optimism:
- Historical context: Net profit rose from 3 billion won in 2024 to 209.4 billion won in 2025, a 6,880% increase.
- Subsidiary synergy: Hanwha Ocean’s 38% sales growth and Hanwha System’s 27% expansion highlight cross-divisional strength.
- Analyst confidence: The 23 buy ratings and 5/5 Momentum score reflect belief in long-term growth.

Investors should monitor the rights offering’s completion and geopolitical developments. While Hanwha’s stock price rose 2.1% to 830,000 won in Q1, further gains hinge on sustained export momentum and disciplined capital allocation. For risk-tolerant investors seeking exposure to the defense and aerospace sectors, Hanwha offers compelling upside—provided execution meets expectations.