Same Defense Sector, Different Risks — LIG Defense & Aerospace and Hanwha Aerospace

GOGUMA TEAM · DEFENSE REASSESSMENT

October 21, 2026 · After the Regular Market Close

Same Defense Sector,

Different Risks

LIG’s Contract Accessibility and Hanwha’s Delivery Recovery
After the Sharp Drop, What Should You Check Before Holding On?

LIG Defense & Aerospace 079550 · KRX _498,500 KRW -9.03% vs. Previous Close _ October 21, 15:30 Regular-Session Close

Hanwha Aerospace 012450 · KRX _814,000 KRW +1.88% vs. Previous Close _ October 21, 15:30 Regular-Session Close

**Hold both stocks, but don’t wait for the same reasons.**Temporarily hold LIG while confirming the scope of the sanctions and whether enforcement is suspended. For Hanwha, verify that delayed deliveries translate into revenue and cash collection. Hold off on adding to positions based solely on the size of the decline.

Data as of 17:40 KST · NXT intraday value at 17:34:59 shown separately
Reassessing the conclusions and errors in the July 17 defense report
Goguma Team · Conditional analysis based on public information

What matters is not how far the stocks have fallen, but what has changed

If you have held these stocks because you believe in the long-term demand for defense, the recent decline is unlikely to feel like a simple price fluctuation. You thought you had picked a good industry, yet the share prices have fallen sharply, and it has become difficult to tell whether waiting is a matter of investment discipline or an inability to accept losses. So this report asks a question that comes before “How much could they rebound?” Can you still hold them for the same reasons? If not, what should you check before reducing your positions?

The conclusion is not to sell both companies outright now, but to set different reasons for holding and different exit conditions for each. **Temporarily hold LIG Defense & Aerospace while confirming the scope of the sanctions, and do not add to the position. Maintain existing holdings in Hanwha Aerospace, but verify whether delayed deliveries are actually converting into revenue and cash.**If your current position is already at a manageable level, holding what you have without adding and waiting to see how things unfold is also a reasonable choice.

This assessment assumes that holders have no debt, collateral shortfall, or need for funds in the near term, and can withstand further volatility. If those conditions do not apply, risk should be reduced regardless of the conclusion of the company analysis. Waiting to recover your purchase price is not a risk-management condition.

What to Correct in the July Report

The July 17 report, “Is Every Company for Itself a Valid Strategy?”, viewed LIG’s decline mainly as a price correction and leaned toward buying the dip. That conclusion was overly definitive. Growing defense demand and a specific company replenishing new orders and converting profits into cash are two different matters. Describing some fund flows as direct evidence of money shifting from semiconductors to defense also went beyond the available evidence.

The reference prices at the time were 749,000 KRW for LIG and 943,000 KRW for Hanwha. The simple price changes through today’s regular-session close are -33.4%, -13.7%. These are not declines from peak prices or actual investor returns. The base-case scenario prices of 900,000 KRW for LIG and 1,230,000 KRW for Hanwha, along with the buy-price table presented at the time, should not be used as the basis for automatic orders now. An old target price that does not reflect new negative developments cannot be a reason to hold. The report also incorrectly listed August 7 as the date of Hanwha’s second-quarter results announcement. The company actually announced its results on July 31. Hanwha Official Earnings Release

Even when the industry grows, the profits that reach shareholders differ

There is no evidence that the structural drivers of defense demand have disappeared. NATO has committed to spending 5% of GDP on defense- and security-related items by 2035. However, core defense spending accounts for 3.5%, while the remaining 1.5% includes related infrastructure and other items. This is neither money that will all be spent on weapons next year nor orders allocated to Korean companies. NATO Agreement

In Europe, there is also strong pressure to expand domestic production and supply chains. SAFE’s requirements for the share of components sourced outside the EU govern eligibility for procurement under that support program; they do not mean that all purchases of Korean-made weapons by Europe are prohibited. Conversely, there is no guarantee that Korean companies can always export under the same conditions. Local production, component sourcing, and technology cooperation can open up contract opportunities while also creating cost and investment burdens.EU SAFE overview

The link investors need to watch is the process by which budgets turn into contracts, contracts into inspected deliveries, and deliveries into earnings and cash flow. The challenges facing these two companies lie at different points along that chain.

Category	LIG Defense & Aerospace	Hanwha Aerospace
Key risk now	Can it secure new and follow-on contracts?	Will delayed deliveries and inspections translate into actual revenue?
Established foundation	Backlog of KRW 24.57 trillion in Q2	Land defense backlog of KRW 38.3 trillion in Q2
What the backlog alone cannot answer	New order replenishment and growth after the sanctions	Recognition timing, profitability, and collection of payments
Current recommendation	Tentative hold; refrain from adding	Hold; refrain from adding until the company’s explanation is reviewed

The reason to analyze the two stocks together is to compare them. This does not mean treating them as having the same risk or selling LIG to switch into Hanwha.

LIG: Even with a backlog, access to the next contract must be assessed separately

According to reports on October 21, the Defense Acquisition Program Administration decided to impose a 24-month suspension on LIG’s participation in bidding, with the measure scheduled to take effect on October 29. The company said it would pursue legal action, including applying for a stay of execution.**As of 17:40 KST, the information cutoff for this report, we had not confirmed that a stay of execution had been granted.**October 29 is not a confirmed date by which the court will have reached a decision. As we were unable to obtain the original order, this report does not elevate media reports about the scope of the measure into legally established facts. Any related allegations or charges should likewise be distinguished from a final conviction.MoneyToday, October 21, Chosun Biz report on the scope of the measure

This news matters not because all of today’s deliveries will disappear. The information currently available does not support saying that the entire existing backlog will be wiped out or exports automatically canceled. The question is what can replenish the backlog as it declines. The actual scope of the restrictions—including their application to follow-on contracts or any exemptions—is crucial, and it is also too early to conclude that existing programs will be completely unaffected.

According to company materials, the backlog fell 6.3% from KRW 26.23 trillion at the end of 2025 to KRW 24.57 trillion at the end of Q2 this year. New orders in Q2 were KRW 326.35 billion, while revenue was KRW 1.1101 trillion. The decline in the backlog includes drawdown through deliveries and should not be read as contract cancellations. However, whether new orders are replenishing the backlog sufficiently was already a question that needed attention. Operating profit for the same quarter was KRW 105.7 billion, with an operating margin of 9.5%. Order volume alone cannot explain the quality of earnings.LIG Q2 official IR, pp. 3–7

There was already near-term pressure on earnings even before the sanctions. Yuanta’s October 12 forecast, which factors in additional R&D spending in the second half, projected operating profit of KRW 95.7 billion in Q3 and KRW 41.7 billion in Q4. These are brokerage estimates, not confirmed company results. It would therefore also be wrong to assume that putting the sanctions on hold would resolve every problem.Yuanta original report, October 12

Why hold now—and why reduce the position

The current tentative hold is not a claim that “it has become cheap, so it will eventually rise.” We have not confirmed any impairment of existing contracts as a whole, and there is still an opportunity to verify the actual scope of the restrictions and the court’s decision. At the same time, we will not wait indefinitely for confirmation.

What is confirmed going forward	Assessment and action
Before the measure takes effect, with the outcome of the stay application unconfirmed	Maintain existing holdings at a level you can afford. Do not add to the position; confirm the scope of the measure and whether a decision has been made.
Stay of execution confirmed	The immediate risk of restrictions has eased. The case for holding has strengthened, but this should not be interpreted as a win on the merits. Consider new purchases only after confirming the scope of the restrictions and the updated earnings outlook.
The stay is denied or sanctions take effect without a stay, and restrictions on access to significant new and follow-on contracts are confirmed	Switch to reducing the position. Do not wait for an actual decline in revenue or a recovery in the purchase price. Size the sale according to your risk tolerance and the confirmed impact on the business.
As of October 29, the status of the stay and the scope of its application remain unclear	Do not simply extend the wait; reassess immediately. If the facts needed to make a decision remain unconfirmed and you cannot afford the losses, reduce risk first.

The biggest disagreement within the team was whether to begin reducing the position based solely on the denial of the stay, or to first confirm the impact on contracts. The final view is not to treat the denial itself as wiping out existing orders, but to reduce the position once restrictions on access to significant contracts are confirmed, even before they show up in earnings. Do not treat legal uncertainty as an automatic reason to sell, or hold unconditionally simply because the facts are difficult to confirm.

Hanwha: Testing the claim that “revenue has been delayed, not lost”

The case for holding Hanwha remains intact. The company reported second-quarter land defense revenue of KRW 2.1075 trillion, operating profit of KRW 533.0 billion, and an operating margin of 25.3%. Its land defense order backlog stands at KRW 38.3 trillion. These results demonstrate an established ability to convert deliveries into profit. However, consolidated operating profit of KRW 1.3655 trillion is not all net income attributable to Hanwha Aerospace shareholders. Earnings at consolidated subsidiaries must be distinguished from non-controlling interests. Hanwha official announcement

The recent question is when those profits will be recognized. In its October 20 report, DS Investment & Securities forecast third-quarter consolidated operating profit of KRW 980.5 billion, below the market consensus of KRW 1.18 trillion cited in the report. It attributed the shortfall to later-than-expected acceptance of initial deliveries, including seven K9s for Romania, and delayed recognition of two K9s for Poland, as well as foreign-exchange effects. The interpretation that this reflects timing differences rather than production problems is the brokerage's assessment, not a recovery timeline guaranteed by the company. DS Investment & Securities' original report dated October 20

“Rolled over” should not be used as a convenient excuse. Deliveries delayed by acceptance inspections may be recognized as revenue in the following quarter, but changes in won-denominated profits due to exchange rates do not necessarily reverse in the same way. At the same time, avoid treating all foreign-exchange effects as permanent losses without checking contract currencies and hedging terms.

DS expects fourth-quarter land defense revenue of KRW 3.8091 trillion, operating profit of KRW 929.4 billion, and a 24.4% margin. This means much of the recovery is concentrated in the next quarter. A modest miss against these figures would not by itself indicate that the production system is broken. Instead, track when the same deliveries are accepted, how much is recognized as revenue, and how payments are collected.

Distinguish a one-off delay from recurring delays

**Hold for now.**If the company's third-quarter announcement clearly identifies the deferred deliveries and their path to recognition in the fourth quarter, the case for holding will strengthen. Even then, assess price and risk capacity before making new purchases. “Buy unconditionally once confirmed” is not the recommendation.

Conversely, if the same deliveries are deferred again in the fourth quarter, abandon the hypothesis that this is a “simple timing difference to be resolved in the fourth quarter.” That alone would not prove that the company's production as a whole is disrupted, but the recovery should not be pushed out yet another quarter while leaving existing estimates unchanged. There is also no reason to wait until year-end if the company cuts its profitability or cash collection outlook before then. Consider reducing the position if the outlook for land defense profits and cash flow deteriorates materially.

What the price tells us—and what it does not

The reference prices below are based on the regular-session closing prices on KRX at 15:30 on October 21, 2026LIG closed at 498,500 won (-9.03%), while Hanwha closed at 814,000 won (+1.88%). Totaling the regular-session intraday bar volumes gives 556,286 shares and 164,943 shares, respectively. The NXT prices checked at 17:34:59 were 494,500 won (-9.76%) and 809,000 won (+1.25%), respectively; these are not NXT closing prices. The daily changes in parentheses are all measured against the previous day's KRX close. LIG Price, Hanwha Price, KRX Intraday Bars and NXT Observations

LIG recovered 8.37% from its intraday low of 460,000 won to the close. However, even its intraday high of 504,000 won was below the previous day's close of 548,000 won. Demand from buyers looking for a lower entry point is not the same as the negative news having been resolved. Hanwha closed higher, but one day's relative strength does not mean capital flowed from LIG into Hanwha.

Stock	Downside Price to Watch	Upside Price to Watch	How to Use It
LIG · Close: 498,500 won	Intraday low: 460,000 won (-7.72%)	Intraday high: 504,000 won (+1.10%), previous day's close: 548,000 won (+9.93%)	A recovery above 504,000 won would be positive for the short-term price trend. 548,000 won is the level needed to recover the previous day's decline. Neither would resolve the sanctions risk.
Hanwha · Close: 814,000 won	Previous day's close: 799,000 won (-1.84%), intraday low: 785,000 won (-3.56%)	Intraday high: 819,000 won (+0.61%)	A close above 819,000 won would be positive for a continued rebound. A drop below 799,000 won would erase today's gains. Do not trade automatically without confirmation of the business outlook.

The figures in parentheses in the table show the distance from each stock's regular-session closing price today. These are observed prices, not validated support levels, automatic stop-loss levels, or 3–6-month price targets. In particular, 460,000 won for LIG is not a newly lowered stop-loss price. If a previous judgment was wrong, we will not invent a lower number to justify holding.

We could not obtain today's exact net purchase amounts by individuals, foreign investors, and institutions for each stock, or the trading volume relative to its usual level. Therefore, we will not claim that forced selling has ended or that institutions are currently being forced to sell.

The calculation to do before setting new price targets

We are not setting new single price targets for either stock this time. Not because there is no upside potential, but because the estimates currently available cannot be called independently derived fair values. Using LIG's pre-sanctions 2027 estimated EPS of 23,483 won, the current price is about 21.23 times earnings. A sharp drop in the share price does not necessarily mean the stock is undervalued. If earnings and long-term growth rates both decline after the sanctions, this multiple will also need to be reassessed. Original Yuanta estimate

For Hanwha, applying DS's 2027 estimated EPS of 60,883 won gives a multiple of about 13.37 times. This figure is meaningful only if that outlook is realized. The following is not a price target, but a sensitivity example showing how much the calculation changes when EPS and the valuation multiple change. The 15x and 20x multiples and the 20% EPS reduction are stress-test assumptions only, not fair multiples or earnings forecasts substantiated by the team.

Earnings Assumption	At 15x	At 20x
DS estimated EPS of 60,883 won maintained	About 913,000 won (+12.16%)	About 1,218,000 won (+49.63%)
20% reduction from the same EPS	About 731,000 won (-10.20%)	About 974,000 won (+19.66%)

Share prices are rounded to the nearest 1,000 won; figures in parentheses are relative to today’s price of 814,000 won. No probabilities have been assigned to the scenarios in each cell. The point of this table is not to set 1,218,000 won as a new price target. Depending on the earnings and multiples used, there may be downside as well as upside. Avoid subtracting non-controlling interests again from EPS based on net income attributable to controlling shareholders, or adding the value of the same stake on top of Hanwha Ocean earnings that already include it.

What would change the view?

For LIG, the outcome of the stay-of-execution request and actual access to contractscome first. If the request is granted, near-term uncertainty will ease, but the main case and earnings burden will remain. If a material restriction becomes reality, do not delay a response simply because losses have already been steep. October 29 is a date to reassess this view, not a catalyst that guarantees a rebound.

For Hanwha, we will connect the official third-quarter commentary with recognition in the fourth quarter of specific deferred deliveries. The official announcement date could not be confirmed within the scope of this review, so no date is being assumed. The key metrics are not just units delivered, but also acceptance, revenue, margins, and cash collection.

So today’s conclusion is simple. **Hold LIG with a time limit and conditions, and hold Hanwha while monitoring the recovery thesis. Do not add to either position based solely on the current decline.**Reduce holdings if evidence emerges that the company’s future cash flows are deteriorating; if the evidence remains intact and only the price fluctuates, do not trade mechanically. Waiting after the rationale for waiting has disappeared is different from holding while checking that the rationale remains valid.

Goguma Team · Research as of October 21, 2026, 17:40 KST. Regular-session closing prices are distinguished from intraday NXT prices. Company IR materials reflect information available at the time of publication; securities-firm forecasts and reports on legal matters are not confirmed results or court rulings. This is a conditional analysis based on public information and does not guarantee returns. Individual holdings, purchase prices, and returns are not included.