Export Markets Offer Vast Opportunities

The authors are analysts of NH Investment & Securities. They can be reached at jinmyung.choi@nhqv.com and hyundong.lee@nhqv.com, respectively. – Ed.

 

Korea is a late-starter in the space development arena. The annual budget allocated for the Korea Aerospace Research Institute (KARI), a leading government-sponsored organization for space research, stands at mere W600bn, versus US$21.7bn for NASA in the US and EUR5.4bn for Europe’s ESA. Korea’s space research budget is also only at one-third the size of Japan’s (JAXA). Moving ahead, we believe it is necessary for the Korean government to put in more financial support in order to narrow the technological gap with advanced economies in the space arena.

The domestic space development market (launching rockets and satellites) is estimated at W435.0bn. About half (W300bn) of KARI’s annual budget goes to space development, with the remaining half spent for aviation research. The Agency for Defense Development’s 425 project for reconnaissance satellites is known to have an annual budget of W135.0bn. According to the government, it also provides funding for the geostationary orbit satellite program (for military purposes), but its budget for the program is not known.

Recently, Korea and the US have agreed to revise their joint missile guidelines in order to facilitate Korea’s plans to build a spy satellite by easing the rules on rocket propellants. As the revision should allow Korea to use solid-fuel propellants for satellites (thereby dramatically reducing launch costs), development of small/mid-sized satellites (which present relatively smaller technological challenges) should accelerate going forward. In particular, noting that small/mid-sized satellites need to form a constellation for better utilization, we believe the number of satellite launches will rise moving ahead.

We also draw attention to the vast opportunities offered by exports markets. The global space market has been expanding at a CAGR of 4%, mainly led by private communication satellite business in the US. In 2019, the global satellite manufacturing market was worth US$12.5bn, with the launching systems market valued at US$4.9bn. When related ground facilities and services businesses are included, we can say that there exists a vast-sized export market out of Korea.

There exists a wide gap between Korea and the US in the area of launching systems technologies. SpaceX, a US space company, is capable of transporting an object weighed 8.3 tons to the International Space Station (ISS). In contrast, the maximum payload of the Korea Space Launch Vehicle (KSLV)-1 (the Naro, Korea’s first carrier rocket, developed in 2013) is only at 1.5 tons, and the Naro is unable to reach sun synchronous orbit (SSO; altitude of 680 km) and geostationary orbit (GSO: 35,860 km).

In order to narrow the technology gap in related technologies, Korea has since 2010 been carrying out a project for development of its second carrier rocket, the Nuri (also known as the KSLV-II). The Nuri is under development by KARI, at an estimated total budget cost of W1,957.2bn (by end of the project). The first test flights are planned for February and October of this year. Korea is planning to build an indigenous space launch vehicle (for small-sized satellites) by end-2025.

Taking a look at Korea’s space rocket development programs (refer to the table below), we notice that the budget size for a new project tends to expand by multiple times compared to the previous one. For instance, an annual budget of W166.7bn has been required for the Nuri development project, a figure that is 3.3x bigger than that for the Naro project. This wide difference suggests that a much larger annual budget will need to be allocated if Korea is to develop space rockets capable of delivering large-sized satellites to the geostationary orbit.

KAI (047810.KS) is a leading player in the domestic launching systems and satellite market, being a central player in the assembly of KSLV-1 (Naro) and also being a developer of electric systems for the Chollian and Arirang satellites. Starting with the Arirang 3A, KAI has become more actively involved in development and assembly of Korea’s satellites. Going forward, we expect the firm to advance its satellite-related technologies further.

Hanwha Aerospace (012450.KS) develops and manufactures rocket engines, the key component for launching systems. As Korea’s only aircraft engine player, the company produces and supplies engines for fighters and helicopters. Also, the firm played a crucial role in development of KSLV-1.

The Korean government has also been investing steadily in satellite technologies. The Korea Institute of Technology Satellite (KITSAT), a science satellite program run from the Korea Advanced Institute of Science & Technology (KAIST) over 1992~1999, laid the foundation for basic satellite technologies in the country. Later, the Arirang and Chollian satellite projects (which were assisted by advanced countries) helped Korea to accumulate more advanced satellite technologies. Today, Korea is capable of developing indigenous satellites in several sizes.

Combined annual budget for Korea’s major satellite projects stands at about W141.0bn (W7.5bn~58.5bn per project), with the budget for individual projects differing depending upon the size of the satellite.

As the government has shifted the focus of its satellite development projects from large-sized to small/mid-sized ones, the chances of developing a diverse range of satellites have been growing stronger. Large-sized satellites are mostly multi-functional, but when the size gets smaller, each satellite tends to have one specific purpose. According to the government’s plans for ongoing next-generation satellite development projects, a standardized satellite prototype should be developed first, with modifications to the prototype to fit different purposes (spying, communications, or export) to follow.

Hanwha Systems (272210.KS) represents a leading player in the satellite business. Mainly engaging in the defense arena, the company offers radar solutions and other observation equipment, including high-resolution camera modules and infrared sensor systems. Recently, it has been studying technologies for ultra-small radar satellites. The firm will likely benefit significantly once related government projects kick off.

Hanwha Systems has also secured proprietary technologies for ground equipment. In mid-2020, the company acquired a UK-based antenna player called Phasor Solution and renamed it Hanwha Phasor. Of note, Hanwha Phasor possesses proprietary technologies for electronically steerable antennas (ESAs), which enable the production of satellite antennas in multiple shapes. ESAs are capable for use in high-speed trains, aircraft, and military planes. Moving ahead, we expect the rising adoption of low-orbit satellite networks to draw attention to Hanwha Systems’ ESA technology.

LIGNex1 (079550.KS) is also manufacturing satellite equipment. Since 2006, it has been developing and supplying SARs for satellites and unmanned aircraft for military purposes. SARs which stand for synthetic-aperture radars are actively adopted by the military as it produces broad-area imaging at high resolution even at night or during inclement weather. There are only a few companies capable of manufacturing SAR due to high technological entry barriers.

Satrec Initiative (099320.KQ) is playing a crucial role in advancement of the domestic satellite industry. The firm was founded in 1999 by KAIST Satellite Technology Research Center (SaTRec) engineers that developed the first Korean satellite (KITSAT-1). It is the sole domestic player capable of developing and exporting earth observation satellite systems, payloads, and ground systems. Having enjoyed record-high sales in 2020, the firm is expected to display further growth down the road, as global demand for earth observation satellites continues to grow. We also positively view the fact that the firm is preparing to conduct the AI-based satellite data analysis business.

 

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