Naro boosts small-cap stocks

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Naro boosts small-cap stocks


The successful launch of the Korea Space Launch Vehicle-1, or Naro, on Wednesday led many small-cap shares in the aerospace and related industries to rise by the daily limit of 15 percent, while conglomerates rose or dipped by a much smaller margin.

The Ministry of Education, Science and Technology confirmed yesterday that the rocket made contact with a ground station in Daejeon operated by Kaist at 3:28 a.m. This was 11 hours and 28 minutes after it lifted off without a hitch and went into orbit. The day of the launch failed to impact the market as it occurred shortly after the bourse had closed for the day.

Some 150 companies worked on developing the Naro, which features over 150,000 components.

On the secondary Kosdaq, shares of Satrec Initiative, which participated in building the satellite platform and related parts, rose 14.89 percent to 25,850 won ($23.70). Vitzro Tech, which developed a propulsion engine, turbo pump and combustor for the rocket, jumped 14.88 percent to 6,330 won. And Hanyang ENG, which oversaw the propulsion-testing facilities, surged 14.85 percent to 6,730 won.

Analysts said shares of small caps in the aerospace industry jumped because they forecast the market will grow to 5.5 trillion won by 2020, up from 2.2 trillion won at present.

“Their shares surged because investors anticipate the government will expand its budgets for future aerospace projects after the successful launch,” said Jeong Geun-hae, an analyst at Woori Investment and Securities.

According to Euroconsult and government reports, the U.S. spent $42 billion on R&D for space exploration in 2011, while Russia spent $6.5 billion and Japan $3.5 billion. In contrast, Korea spent $208 million in 2011, down from $331 million in 2006.

Meanwhile, on Korea’s benchmark Kospi index, shares of conglomerates didn’t enjoy quite such a boost from the rocket as their aerospace divisions only make up a tiny fraction of their overall revenues.

Shares of Korean Air, which was in charge of assembling Naro parts, dipped 0.11 percent to 45,450 won.

Hanwha Group, which was responsible for developing a kick motor that helped the rocket reach its target orbit, saw its shares edge up 1.06 percent to close at 33,450 won.

One local analyst warned investors to refrain from betting on the Naro effect as it will likely be very brief.

“The successful launch is likely to push up stock prices of companies involved in the project temporarily, but it is risky to bet on their continued growth because the Naro is just one small part of their businesses,” he said.

By Kim Mi-ju []
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