KOSPIAerospace & Defense047810

Korea Aerospace Industries

₩132,800▲ 4.48%2026-10-02 close
Market Cap
₩13T
Turnover
₩33.5B
Volume
250,000 shares
Shares out.
97.5M
PER
69.5×
PBR
6.5×
EPS
₩1,819
Dividend Yield
0.40%

PER, EPS, PBR and BPS are calculated in-house from the last 4 quarters (2025Q3–2026Q2) · Dividend yield is based on ₩500 per share · Prices as of the 2026-10-02 close

01

Report overview

KF-21 Ramp-Up Begins, Margins Lag

Deliveries of complete aircraft are lifting revenue quickly, yet quarterly operating margins have moved the other way, leaving the conversion of the production and export mix into actual profit as the open question.

  1. 1

    For 2025 the company posted consolidated revenue of KRW 3.696tn and operating profit of KRW 269.2bn, a 7.3% operating margin, marking three straight years of improvement from 5.1% in 2022.

  2. 2

    In Q2 2026 revenue rose sharply to KRW 1,167.9bn from KRW 828.3bn a year earlier, but operating profit fell to KRW 48.4bn from KRW 85.2bn (company preliminary disclosure dated July 29, 2026, pre-audit).

  3. 3

    KF-21 system development was concluded in July 2026, and air force deliveries start in the second half, placing the company at a structural inflection point.

  4. 4

    The order backlog stood at KRW 27.34tn at the end of 2025, underpinning several years of revenue.

  5. 5

    Operating cash flow was negative for three consecutive years from 2023 to 2025 and the 2025 debt-to-equity ratio was 446.6%, so balance-sheet strain remains.

02

Business structure

Korea Aerospace Industries (KAI) is regarded as the only integrated domestic developer and manufacturer of complete aircraft, covering concept and system development through mass production and follow-on maintenance and logistics support.

Its business splits broadly into domestic defense programs (KF-21, the LAH light armed helicopter, the T-50 family, Surion), complete-aircraft exports (FA-50 variants and T-50i), airframe structures supplied to Boeing and Airbus, aircraft maintenance through subsidiaries, and a space division centered on satellites and launch vehicles.

Per the 2025 annual report, the parent-basis customer mix was 48.42% domestic including the defense procurement agency, 26.05% from Boeing, Airbus, IAI and others, and 25.53% from complete-aircraft export countries such as Poland, so domestic defense and export or commercial work each account for roughly half.

In space, the company was the first private-sector prime for next-generation mid-size and defense satellite programs and handles final assembly of the Korean launch vehicle as well as fabrication of its first-stage propellant tank.

Subsidiary KAEMS has capacity for roughly 270 commercial and rotary-wing aircraft a year, handled 242 units in 2025 for about 82.4% utilization, while S&K Aerospace held around 87% utilization on a line capable of up to 28 Airbus A320 wing structures a month.

Customers are mainly the government and the military, so contracts are large and cash collection cycles long, and domestically the company is effectively the sole supplier for complete-aircraft development and production.

Abroad, however, it competes head-on with Western and emerging platforms in trainers, light attack aircraft and 4.5-generation fighters; Indonesia, for instance, is already executing a 42-unit Rafale contract with France.

On the KF-21, KAI supplies the airframe, Hanwha Aerospace the engine and Hanwha Systems the radar and avionics, so a single aircraft sale is spread across several listed companies.

03

Earnings trend

Quarterly revenue · Operating profit
RevenueOperating profit
Annual revenue · Operating profit
RevenueOperating profit
Quarterly results · Last 5 quarters
QuarterRevenueOperating profitOp. margin
2025Q2₩828.3B₩85.2B10.3%
2025Q3₩702.1B₩60.2B8.6%
2025Q4₩1.5T₩77B5.2%
2026Q1₩1.1T₩67.1B6.1%
2026Q2₩1.2T₩48.4B4.1%
Annual results
YearRevenueOperating profitNet income (parent)Op. marginROEDebt-to-equity
2022₩2.8T₩141.6B₩118.5B5.1%8.3%434.8%
2023₩3.8T₩247.5B₩224B6.5%14.0%340.7%
2024₩3.6T₩240.7B₩172.1B6.6%10.1%364.7%
2025₩3.7T₩269.2B₩185.9B7.3%10.2%446.6%

Consolidated basis (financial statements including subsidiaries) · Final figures from DART filings · Net income attributable to owners of the parent · Data as of 2026-09-04

04

Earnings analysis

On an annual basis, revenue jumped from KRW 2,786.9bn in 2022 to KRW 3,819.3bn in 2023, eased to KRW 3,633.7bn in 2024, then rose again to KRW 3,696.4bn in 2025.

Operating profit expanded from KRW 141.6bn in 2022 to KRW 247.5bn, KRW 240.7bn and KRW 269.2bn, lifting the operating margin for three straight years from 5.1% to 6.5%, 6.6% and 7.3%. Net profit attributable to owners fell from KRW 224.0bn in 2023 to KRW 172.1bn in 2024 before recovering to KRW 185.9bn in 2025.

Quarterly results are far more volatile. From Q3 2025 revenue of KRW 702.1bn and operating profit of KRW 60.2bn (8.6% margin), Q4 2025 revenue more than doubled to KRW 1,466.7bn while operating profit reached only KRW 77.0bn, a 5.2% margin.

Q1 2026 showed revenue of KRW 1,092.7bn and operating profit of KRW 67.1bn (6.1%), and Q2 2026 revenue of KRW 1,167.9bn with operating profit of KRW 48.4bn (4.1%), so top-line growth and margin compression appeared together.

The company disclosed first-half 2026 cumulative revenue of KRW 2,260.6bn and operating profit of KRW 115.6bn, saying revenue grew 48.0% year on year while operating profit declined 12.4% (preliminary figures, external audit not completed).

Brokerage analysts attributed the soft Q1 2026 print to seasonality in domestic deliveries and complete-aircraft exports plus fewer high-margin export aircraft handovers, and projected a back-half-weighted year because KF-21 production volume is concentrated in the second half and Q4.

Cash flow tells a separate story: after an inflow of KRW 1,492.6bn in 2022, operating cash flow was negative for three consecutive years at KRW -700.4bn, KRW -728.2bn and KRW -903.3bn, while liabilities grew from KRW 5,519.6bn to KRW 8,472.9bn and the debt-to-equity ratio rose from 340.7% to 446.6%. That pattern coincides with the swelling inventory and advance-payment burden of large production programs.

05

Industry analysis

Amid rising global defense budgets, demand for fighters and trainers is emerging in several regions at once, and on the domestic policy side the government included a goal of becoming a top-four defense power in its 2026 growth strategy, flagging roughly KRW 3.6tn of national growth fund money for aerospace and defense.

In cycle terms the company is crossing from development into mass production: where technology validation and cost burden were once the swing factors, delivery schedules and revenue recognition now matter most.

A credit rating agency noted that production and export programs carry better economics than development work, leaving room for both scale and profitability to improve as programs progress.

On pricing, the estimated program cost for the KF-21 Block 2 under the Indonesian proposal has been cited at about USD 125m per aircraft, versus roughly USD 208.3m to USD 225m per unit in recent European F-35A contracts and proposals. Production constraints are nonetheless clear.

The Sacheon plant is building toward annual output of about 50 aircraft, and with domestic air force volume and the full 120-unit delivery plan, utilization is described as near its ceiling, so absorbing export volume requires careful scheduling and carries late-delivery penalty risk.

Competitively, the company holds a monopoly-like position as the domestic prime for complete aircraft, yet it opted out of a large program such as the US Navy Undergraduate Jet Training System, leaving its pipeline concentrated by region and platform.

Weapons localization is also under way: the Agency for Defense Development said a long-range air-to-air missile development program to replace the European Meteor will run from December 2026 to November 2033.

06

Outlook

The most firmly confirmed change is the completion of KF-21 development.

The Defense Acquisition Program Administration held a KF-21 system development completion ceremony in Sacheon on July 29, 2026, wrapping up the development phase 10 years and 7 months after program launch, following prototype rollout in April 2021 and a combat suitability verdict in May 2026.

According to a credit rating agency, initial KF-21 production deliveries begin in the second half of 2026, with 40 aircraft to be handed over by 2028 and 120 in total to the air force over the longer term. The company was reported to have signed a KF-21 additional weapons testing contract worth about KRW 685.9bn.

On the company's 2026 revenue target, Hanwha Investment & Securities said in a February 2026 report that management guided to KRW 5,730.6bn, including a domestic revenue target of roughly KRW 3.3tn. Indonesia is the core of the export pipeline.

At the Farnborough International Airshow in July 2026 a KAI executive told a UK aviation publication that in-depth talks were under way on an initial 16 aircraft, that the final order could reach 48 units, and that upon a firm contract the aircraft would be built in Korea with Indonesian industrial participation.

For the US Navy UJTS, a 216-aircraft procurement whose final request for proposals was issued in Q1 2026, the company announced it would not bid; Hana Securities said this shrinks the pipeline but has limited impact on the earnings outlook, adding that with Malaysian production revenue converting in 2026 and Polish revenue in 2027 the export case remains intact.

On target prices, DB Financial Investment raised its figure to KRW 220,000 in an April 2026 report, and Yuanta Securities lifted its target to KRW 236,000 in April 2026.

On the management front, Chief Executive Kim Jong-chul said exports would serve as a firm growth driver alongside a larger commercial mix and portfolio expansion, and the company opened second-half graduate recruiting on September 1, 2026 to add research, development and production staff.

07

Valuation

PER
69.5×
PBR
6.5×
ROE
9.7%
EPS
₩1,819
BPS
₩19,496
Dividend per share
₩500

Measured against profits already booked, the shares trade at multiples well above the upper end of this stock's historical trading band, and the premium to net asset value is also sizeable.

That can be read as the market pricing in the start of KF-21 production and prospective export contracts while the most recent four quarters of reported profit have yet to fully reflect expanded production and export volumes.

Indeed, Hana Securities calculated in an April 2026 report that, based on the price at the time, the 2027 multiple fell markedly versus 2026, underscoring that the pace of profit growth is what drives the multiple.

On dividends, the company maintains a cash payout, but the yield sits below the broad KOSPI average, so value here rests on the growth scenario rather than distributions.

What needs checking is therefore straightforward: whether the operating profit decline seen in the first half despite higher revenue actually recovers on a better second-half delivery mix, and whether persistent operating cash outflows turn positive as delivery payments are collected.

If both improve together, the multiple gets filled in by results; if they slip, the gap between expectation and reported numbers simply persists.

PER, EPS, PBR and BPS are all calculated in-house (the same method as Naver and Toss) · Dividend yield = cash dividend per share from DART filings (supplemented by KRX) ÷ current price · As of 2026-09-04

08

Bull factors

KRW 27tn Backlog and the Shift to Production

The order backlog was KRW 27.34tn at end-2025, several years of work relative to annual revenue. KF-21 development concluded in July 2026, moving the program past its development risk phase, with initial production deliveries starting in the second half and 40 aircraft scheduled through 2028.

A credit rating agency assessed production and export programs as carrying better economics than development work. Reported figures also show the operating margin climbing for three consecutive years, from 5.1% in 2022 to 7.3% in 2025.

Breadth of the Export Pipeline

Talks with Indonesia on an initial 16 aircraft are under way, and a KAI executive said the final total order could reach 48 units. Analysts expect FA-50 family volumes for Poland, Malaysia and the Philippines to contribute more meaningfully from 2027 given delivery schedules.

On price, the KF-21's estimated program cost is cited below the F-35A, leaving room to approach budget-constrained buyers. Cooperation discussions with Saudi Arabia and the United Arab Emirates have also continued in the Middle East.

Policy Support and a Broader Subsidiary Base

The government included defense industry promotion in its 2026 growth strategy and flagged roughly KRW 3.6tn of national growth fund investment for aerospace and defense.

Subsidiary KAEMS processed 242 aircraft in 2025 for about 82.4% utilization, while S&K Aerospace held around 87% utilization, so non-aircraft revenue streams are also running. In space, the company has built a base spanning next-generation mid-size and defense satellites and final assembly of the Korean launch vehicle.

The airframe structures unit serves commercial customers including Boeing and Airbus, providing a demand axis distinct from the defense cycle.

09

Bear factors

Revenue Up, Margins Down

Q2 2026 revenue rose sharply to KRW 1,167.9bn from KRW 828.3bn a year earlier, but operating profit fell to KRW 48.4bn from KRW 85.2bn, cutting the operating margin from 10.3% to 4.1%. The company's preliminary disclosure also showed first-half revenue up 48.0% year on year while operating profit declined 12.4%.

Analysts pointed to fewer-than-expected deliveries of higher-margin export aircraft. Recent quarters show that when volume rises without a supportive mix, profit leverage can be delayed.

Cash Flow and Balance-Sheet Strain

Operating cash outflows widened for three straight years, at KRW -700.4bn in 2023, KRW -728.2bn in 2024 and KRW -903.3bn in 2025. Over the same period liabilities grew from KRW 5,519.6bn to KRW 8,472.9bn and the debt-to-equity ratio rose from 340.7% to 446.6%.

A credit rating agency noted that because most payment for complete-aircraft production is collected after delivery, working capital swings widely around large program handovers. Whether that burden eases as deliveries accelerate is something to verify.

Event Dependence and Contract Uncertainty

Indonesia's consideration of importing complete aircraft has been described as a defense ministry statement of intent rather than a legally binding letter of acceptance or a signed main contract.

Indonesia has repeatedly delayed contract execution on its Rafale purchase for budget reasons, and its fiscal position is cited as a source of strong unit-price pressure. Even if a contract is signed, deliveries would be spread over several years, so annual revenue recognition could be smaller than hoped.

The share price fall right after the decision not to bid for the US Navy UJTS illustrates sensitivity to order news.

10

Risk factors

Delivery Schedule and Capacity

The Sacheon plant is building toward roughly 50 aircraft a year, and with domestic volume and the 120-unit delivery plan, utilization is described as near its ceiling. Absorbing export volume requires careful scheduling, and delivery slippage brings penalty-related cost risk.

In 2025 part of the revenue for FA-50 aircraft tied to the Polish export and for the light armed helicopter was analyzed as having been carried over. Repeated carryovers amplify quarterly earnings volatility.

Customer and Policy Concentration

Based on the 2025 annual report, close to half of parent-basis revenue comes from domestic customers including the defense procurement agency, tying results directly to government budgeting and program timelines.

Exports likewise involve government-to-government negotiation and financing structures, many of them outside a single company's control. The ownership structure, with Korea Eximbank as the largest shareholder, is another channel through which policy shifts are felt. If policy priorities change, both the timing and the size of orders can move together.

Competition and Technology Transfer Talks

In Indonesia, France's combat-proven Rafale is already executing a 42-aircraft contract and has secured the next-generation mainstay slot. Requests to localize maintenance or parts assembly are cited as potential negotiating variables.

The KF-21 achieved indigenous development of core equipment such as its AESA radar, yet the scope of technology transfer is a recurring sticking point in export negotiations. Emerging platforms such as Turkey's KAAN widen the competitive field as well.

11

What to watch next

  1. Late October to early November 2026

    In the Q3 results, check whether complete-aircraft deliveries and the operating margin recover from Q2's 4.1%. This is the first real test of the back-half-weighted, step-up improvement analysts projected.

  2. During Q4 2026

    Watch for the start of KF-21 initial production deliveries to the air force and the booking of logistics support revenue. Per rating agency material, this is the starting point of a 40-aircraft delivery schedule through 2028.

  3. Second half of 2026 to early 2027

    Check whether the 16-aircraft KF-21 contract with Indonesia is formally signed and disclosed. With talks still in progress, conversion into a contract is flagged as the key to securing a first export record.

  4. January to February 2027

    With full-year 2026 results, verify whether the company met its revenue target - reported by Hanwha Investment & Securities in February 2026 as KRW 5,730.6bn - and review the 2027 guidance presented.

  5. With each quarterly report

    Track operating cash flow, the debt-to-equity ratio, and inventory and advance payments. Whether three years of cash outflows and a 446.6% debt ratio ease as delivery payments are collected is the core measure of financial stability.

12

Overall view

Korea Aerospace Industries sits at a transition from development to mass production, with KF-21 system development concluded in July 2026 and air force deliveries starting in the second half.

On reported numbers, 2025 revenue of KRW 3,696.4bn and operating profit of KRW 269.2bn produced a 7.3% operating margin, a third straight year of improvement from 5.1% in 2022, while the end-2025 backlog reached KRW 27.34tn.

Yet the company's preliminary disclosure showed first-half 2026 revenue rising sharply to KRW 2,260.6bn while operating profit fell year on year to KRW 115.6bn, with the Q2 margin down to 4.1%.

Operating cash flow was negative for three consecutive years and the 2025 debt-to-equity ratio was 446.6%, so the working capital burden of production programs still shows up in both earnings and the balance sheet.

The bull case rests on the backlog, an export pipeline including 16 aircraft for Indonesia with up to 48 discussed, and the relatively better economics of production and export work; the bear case rests on delayed margin recovery, capacity limits at Sacheon, and uncertainty over contract conversion.

What to watch is whether second-half deliveries and contract disclosures narrow the gap between expectation and reported results; this report is for information purposes and contains no buy or sell opinion or target price.

13

Sources

  1. Korea Exchange (KRX) — Prices · Market Cap · Volume
  2. FSS electronic disclosure system (DART) — Financial statements · Dividend filings
Show 18 more articles and sources
  1. cbci.co.kr
  2. investing.com
  3. m.irgo.co.kr
  4. m.koreaaero.com
  5. koreaaero.com
  6. investing.com
  7. comp.fnguide.com
  8. jasoseol.com
  9. kind.krx.co.kr
  10. sankun.com
  11. dailyinvest.kr
  12. m.thinkpool.com
  13. alphasquare.co.kr
  14. v.daum.net
  15. m.thinkpool.com
  16. mt.co.kr
  17. sisajournal-e.com
  18. g-enews.com

Report written 2026-09-05 · Data as of 2026-09-04

This content is AI analysis of market data and web search results, provided for information only. It is not a solicitation or recommendation to invest. Investment decisions and their consequences are the investor's own responsibility. Data may be delayed or contain errors.