Hanwha Aerospace hit by earnings shock as Q3 profit falls short of expectations

Hanwha Aerospace delivered an earnings shock on Thursday, with its third quarter operating profit coming in at less than half the market consensus, weighed down by adjustments in overseas defense deliveries and unfavorable exchange rates.

The company posted an operating profit of 452 billion won ($338.1 million), down 46 percent from the same period last year and far below the 1.21 trillion won consensus compiled by FnGuide. Sales declined 6 percent from the same period last year to 6.09 trillion won.

Shares of Hanwha Aerospace closed down 3.43 percent at 760,000 won on Thursday, and the decline widened to 7.62 percent in after-hours trading as of 5:24 p.m.

The order backlog of the land systems division, which makes the K9 self-propelled howitzer, the Chunmoo multiple rocket launcher and armored vehicles, stood at about 35 trillion won as of the end of September.

“The third quarter was affected by adjustments to delivery schedules and one-off costs, but results will improve in earnest from the fourth quarter,” a Hanwha Aerospace spokesperson said in a press release.

The shortfall came largely from delivery timing, according to the company. Deliveries for major export programs, including the second batch of K9 howitzers for Poland, were concentrated in the fourth quarter, while some volumes had been delivered early in the second quarter. The land systems division posted an operating profit of 21.7 billion won.

The aerospace division recorded an operating loss of 2.4 billion won, which the company attributed to costs under its risk and revenue sharing program as deliveries of geared turbofan engines rose.

Production at the Daejeon plant, where an explosion on June 1 killed five workers, has yet to return to normal.

“We plan to expand production at the Daejeon plant in phases and aim for normal operations within the first half of next year,” a Hanwha Aerospace representative said during a conference call on Thursday.

The company expects fourth quarter results to improve as deliveries of K9 howitzers and Chunmoo launchers to Poland proceed, along with K9 programs in Egypt and Australia.

New orders continued during the quarter. The company signed a K9 export contract with Spain’s Indra Sistemas in August and a deal worth about 410 million euros ($456.7 million) to supply 18 Chunmoo launchers to Croatia in September. Its U.S. unit won a prototype supply contract for the U.S. Army’s Mobile Tactical Cannon program.

“The prototype contract covers an initial six units of the K9MH, a wheeled self-propelled howitzer based on the K9 platform, and we recently signed for three of the 12 option units," said a Hanwha spokesperson during a conference call on Thursday.

BY KIM MIN-YOUNG [[email protected]]