By Daniel Shane
War, what is it good for? Shares in South Korean defense contractor Hanwha Techwin (012450.KR), it would seem.
Analysts at Daiwa just upgraded their target price on this stock to KRW54,000, suggesting the shares could have almost 15% upside.
That comes on the back of the latest saber rattling from North Korean despot Kim Jong-un, with the rogue state this week claiming it’s prepared for war as U.S. president Donald Trump announced he was sending an “armada” to the waters off the Korean peninsula.
That may be terrifying news for humanity but it’s great for Techwin, which sells K9 artillery vehicles. Techwin should also benefit as South Korea searches for a new leader following the impeachment of Park Geun-hye. Both of the leading candidates have vowed to spend more on defense.
Here’s Daiwa analyst Mike Oh, who rates the stock Outperform:
Mr. Moon Jae-in of the Democratic Party once stated that 3% of GDP is an appropriate level for the military budget, while Ahn Cheol-Soo, the candidate from The People’s Party, has spoken of a similar target. We forecast 2017-22E defence spending to see a 7.2% CAGR, vs. a CAGR of 4.3% during 2011-16.
Other catalysts for Techwin’s share price include an expected USD646 million order from India for 100 K9 howitzers. The company’s also gunning for a KRW200 billion order from Norway which could materialize later in the year.
Techwin’s stock has shot 9% higher than year, outperforming the Korean market by 3%. At 16 times forward earnings the shares are cheap compared to their historical average.