Hanwha Systems Doubles in a Month: Defense Exports and Philly Shipyard Reversal Fuel Stunning Rally

[Korea Financial Times, Shin Haeju] Hanwha Systems (CEO Son Jae-il) has been on an extraordinary run since the start of the year. The company surpassed its entire 2025 annual return in just over a month of trading in 2026 — driven largely by a dramatic turnaround in sentiment toward its U.S. subsidiary, Philly Shipyard, which had weighed heavily on last year's earnings.

Credit Rating Upgraded Last November

Hanwha Systems' share price climbed 127.62% last year, rising from KRW 23,900 on January 2 to KRW 54,400 on December 30, 2025. But the pace of gains has accelerated sharply this year.

Opening at KRW 55,300 on January 2, 2026, the stock surged 122.42% to KRW 123,000 by February 4 — replicating last year's full-year return in barely a month. Market capitalization more than doubled, swelling from KRW 10 trillion 447.2 billion to KRW 23 trillion 237.1 billion.
As of the closing price on February 23, the stock stood at KRW 111,300, having entered a modest correction phase, though it continues to hold strong upward momentum.

Underpinning this rally is a solid foundation of financial credibility. Hanwha Systems' corporate credit rating has been on a steady upward trajectory — beginning at 'A/Stable' in 2008, upgraded to 'AA-/Stable' in 2010, held at that level for approximately 16 years, and then raised again to 'AA/Stable' in November last year.

In January of this year, the company issued KRW 400 billion in corporate bonds to fund debt repayment and settle payments related to K2 tank fire control system sighting equipment for export to Poland. The 'AA/Stable' rating was maintained, supported by robust top-line growth from expanding defense demand and strong business stability anchored by affiliate IT services.

Last Year's Results Weighed Down by Philly Shipyard

Despite this year's powerful stock performance, last year's financial results were underwhelming. On a consolidated basis, Hanwha Systems posted revenue of KRW 3 trillion 664.1 billion and operating profit of KRW 123.6 billion in 2025. Revenue grew 30.69% year-on-year, but operating profit fell 43.67%.

The primary drag on profitability was Philly Shipyard, newly incorporated as a subsidiary last year. Hanwha Systems holds a 60% stake in Philly Shipyard through its U.S. holding entity, HS USA Holdings. The acquisition was completed in December 2024, and Philly Shipyard's results have been consolidated into Hanwha Systems' financials from the first quarter of last year onward. Philly Shipyard recorded an operating loss of KRW 160 billion last year, with an additional KRW approximately 31 billion in purchase price allocation (PPA) amortization charges arising from the acquisition process.

The core business, however, remained solid. The defense segment posted revenue of KRW 2 trillion 433.8 billion last year — up approximately 16% year-on-year — driven by the full-scale revenue recognition of major export programs, including the K2 tank fire control system for Poland and the Multi-Function Radar (MFR) for the Medium-Range Surface-to-Air Missile (M-SAM) supplied to the United Arab Emirates and Saudi Arabia. Operating profit in the segment rose 35% to KRW 227.5 billion.

The ICT segment was relatively subdued, broadly holding steady with the prior year. Despite executing a smart plant construction project for Hanwha Aerospace, segment revenue fell 6% year-on-year to KRW 652.6 billion, while operating profit declined a marginal 0.18% to KRW 56 billion.

"Philly Shipyard to Become a Crown Jewel This Year"

Philly Shipyard, which eroded profitability last year, has been recast this year as a key catalyst for the stock's surge. Expectations have grown for integrated synergies spanning both the existing land-based defense segment and the newly added shipbuilding arm — positioning Hanwha Systems as one of the few domestic defense companies able to simultaneously capitalize on export momentum in both shipbuilding and land-based defense.

A statement by Michael Coulter, CEO of Hanwha Defense USA, made in early last month drew particular market attention. He disclosed that the company is in discussions with the Trump administration on potential contracts for the construction of surface combatants, submarines, and unmanned surface vessels.
Further details emerged that federal and local officials are in talks regarding site acquisition to expand dock capacity at Philly Shipyard, including negotiations to secure access rights to adjacent, currently underutilized docks.

On the same day, Hanwha Defense USA, together with Hanwha Systems and Havoc AI, signed a joint development agreement for the U.S. Navy's Autonomous Surface Vessel (ASV) program worth USD 3 billion (approximately KRW 4 trillion 354.5 billion). News that Philly Shipyard is being considered as a production hub for related vessels sent Hanwha Systems' shares surging 27.53% the following day.

Targets 20%+ Revenue Growth Across All Segments

For 2026, Hanwha Systems has set a target of more than 20% revenue growth across all business divisions. The defense segment plans to sustain self-funded investment in core programs, while the ICT segment aims to achieve revenue growth in the 20% range and meaningfully expand operating profit. Philly Shipyard, which posted a significant loss last year, is expected to return to operating profit this year.

The securities industry also expects 2026 to mark a turning point for Hanwha Systems' earnings. Kang Tae-ho, an analyst at DS Investment Securities, noted: "In 2026, M-SAM II deliveries to the UAE and Saudi Arabia are set to enter full-scale production, with Iraq deliveries also scheduled to proceed. A robust order pipeline awaits, including the second batch of K2 tanks for Egypt (EC2), the Long-Range Surface-to-Air Missile (L-SAM), and certain contracts related to the Saudi Arabia Ministry of National Guard (MNG)."

In the near term, profit growth may be constrained by increased spending on export product development and space business-related internal R&D investment. However, analysts view this as a necessary step toward simultaneous top-line and bottom-line growth in 2027, when M-SAM-related annual revenue is projected to expand to approximately KRW 500 billion.

Structural improvements at Philly Shipyard are also expected to take shape. Delivery of two loss-making vessels — the National Security Multi-Mission Vessel (NSMV) and the Subsea Rock Installation Vessel (SRIV) — is scheduled to be completed within the first half of this year, with container vessel construction set to ramp up in the second half. Additional orders for Medium Range (MR) tankers remain a possibility, and the shipyard plans to bid on follow-on U.S. Navy frigate (FFG) contracts upon obtaining Facility Clearance (FCL) certification.

Shin Haeju (hjs0509@fntimes.com)