World’s top-performing defence stock soars 3,100% in five years

SEOUL – South Korea’s Hanwha Aerospace has emerged as the world’s best-performing defence stock as investors bet the upending of security alliances by US President Donald Trump will spur a buying spree for weapons, particularly in the affordable conventional arms the company has been making for decades.

Its parent, Hanwha group, the country’s seventh-largest family-controlled conglomerate, is hoping to capitalise on the expected boom with a massive share sale for its weapons unit to finance large-scale investments and overseas deals. Now regulators, as well as some investors, are starting to ask whether it’s getting ahead of itself.

Hanwha Aerospace shares have risen more than 3,100 per cent in the last five years, making it the best-performing defence stock on Bloomberg’s World index. It and smaller rival Hyundai Rotem have been the top two gainers in Asia’s stock market so far this year, more than doubling in value. Both are little known outside South Korea but play a key role in preparing the country’s troops for possible battle with its heavily militarised neighbour, North Korea. 

Hanwha Aerospace last year won a deal to sell more K9 self-propelled howitzers to Poland, part of a weapons-supplying agreement between South Korea and the eastern European country. Expectations for overseas growth have helped the Hanwha group’s market capitalisation nearly double since the start of the year to around 73 trillion Korean won (S$66.8 billion).

“We are witnessing signs of a new Cold War as every country is seeking to strengthen its own security,” said Mr Choi Kwangwook, chief investment officer at J Asset Management. “Demand for weapons is exploding now.” 

Hanwha shares are trading at just 19 times expected earnings, much lower than European peers – around 41 times for Rheinmetall or 25 times for Leonardo. The company aims to generate 70 trillion won in revenue by 2035, with 10 trillion won annual profit, when it completes building production facilities in Europe, Middle East, Australia and the United States. 

Investors said Hanwha’s advantage is its experience of producing relatively affordable weapons designed to defeat Soviet-era systems, including those deployed by Russia against Ukraine. Hanwha never stopped producing conventional weapons and armoured vehicles, even amid expectations that warfare is shifting to drones and AI. 

“There are very few countries in the world that produce these kinds of old-fashioned weapons and no one expected so far that we would badly need them again for a war with land-based troops,” said Mr Lee Chaiwon, chairman of Life Asset Management, a long-term fund running 1.6 trillion won in assets. “South Korea definitely has an edge in production of these obsolete weapons.”

Though South Korea does not sell weapons to countries at war and denies it is supplying arms to Ukraine, it does sell to the US and European governments looking to boost their stockpiles. South Korea is ranked as the world’s 10th-largest weapons exporter, according to a report from the Stockholm International Peace Research Institute, and is aiming to become number four by 2027. 

While much smaller than industry leaders like Lockheed Martin or BAE Systems, South Korean manufacturers also have a reputation for delivering such weapons more quickly than rivals, a point noted by Polish President Andrzej Duda. 

“Why did we buy South Korean weapons? The reason is simple,” the President said during his visit to Nato earlier in March. “We think South Korean partners would be able to supply high-quality weapons within a few months.” BLOOMBERG