Korea Defense: What's new in Korea defense? Narrative only strengthening; Chunmoo & air defense weapons still in high demand

Korea defense shares were down this week (Hanwha Aerospace flat, LIG D&A -7%, Hyundai Rotem -8%, KAI -11% vs. Kospi -14%), with investor interest remaining subdued on a potential 3Q earnings miss. However, we believe a single quarter's earnings miss does not imply execution risk or an impaired order outlook for Korean defense names, as evidenced by all-time high monthly weapons exports alongside growing interest in Korean land system weapons and air defense systems. Following the recent Houthi forces' strikes in Saudi Arabia, we think escalating tensions in the Middle East are likely to accelerate procurement of Korean air defense systems (M-SAM II & L-SAM), which have a proven track record of fast delivery and superior strike capabilities. We reiterate OW ratings on Hanwha Aerospace and LIG D&A. The most imminent order catalyst is the UAE, which has said it plans to procure M-SAM II, L-SAM, and Chunmoo. This week we witnessed growing interest for Hanwha Aerospace's Chunmoo in Spain an