South Korea's Hanwha Aerospace to spin off industrial solutions businesses from defence

By Joyce Lee

SEOUL (Reuters) - South Korea’s Hanwha Aerospace said on Friday it will spin off its semiconductor equipment and video surveillance businesses, carving out units that contributed about 16% to revenue in favour of focusing on its flagship defence division.

The announcement sent the firm’s share price down 8% in morning trade on profit-taking. The stock had jumped on Tuesday by more than 15% after local media reported the spin-off plan.

Hanwha Aerospace said it will spin off chip equipment maker Hanwha Precision Machinery and surveillance camera maker Hanwha Vision, with the two businesses eventually merging into a single industrial solutions company.

That new entity would be worth about 2 trillion won ($1.48 billion), while the defence business would be worth 10 trillion won, showed estimates from Shinhan Securities.

Hanwha Aerospace’s market capitalisation on Friday morning was a shade lower than those figures combined, at about 11 trillion won.

"This will help us overcome the valuation discount due to the mixture of defence business and Hanwha Vision, Hanwha Precision Machinery," Hanwha Aerospace said in a conference call explaining the plan.

"Hanwha Precision’s high-growth chip equipment business can expand with solid cash flow from Hanwha Vision," including developing equipment used to make high-bandwidth memory (HBM) chips used in artificial intelligence (AI) chipsets, it said.

Hanwha Aerospace said it will continue to develop its defence business spanning land, sea, air and space with shipbuilder Hanwha Ocean and network system provider Hanwha Systems.

The spin-off is in line with Hanwha Group’s effort to streamline its flagship defence business which will be the focus of Hanwha Aerospace, whose history began with aircraft parts.

South Korea seeks to become the world’s fourth-largest defence exporter by 2027. Its biggest deal - agreed with Poland in 2022 to deliver weapons including 672 K9 howitzers - involved Hanwha Aerospace.

The firm is in talks to export arms such as howitzers to Romania, a person with direct knowledge of the matter told Reuters, in a deal South Korean media reported may be worth over 1 trillion won ($739.21 million). Hanwha declined to comment.

The spin-off will make it easier to pursue defence business growth strategies, analysts said.

The conglomerate is working to expand its defence business, with Hanwha Ocean attempting to acquire Australian shipbuilder Austal, which designs, builds and maintains ships for the U.S. Navy.

The spin-off will also streamline governance structure to ease succession for the heirs of the conglomerate’s current chairman, analysts said.

($1 = 1,352.7900 won)

(Reporting by Jack Kim and Joyce Lee; Editing by Ed Davies and Christopher Cushing)