[Click eStock] "Hyundai Rotem, Possible Return to Profit This Year with Increased Railway Division Sales... Limited Scope"

[Asia Economy Reporter Koo Eun-mo] DB Financial Investment stated that Hyundai Rotem confirmed the bottom with an earnings shock in the fourth quarter of last year, and expects a return to profitability this year due to increased sales in the railway sector. However, the extent of the improvement is not expected to be significant.

Hyundai Rotem announced on the 23rd that its consolidated sales for the fourth quarter of last year were 636.6 billion KRW, a 3.1% decrease compared to the same period last year, and the operating profit margin recorded -11.6%. Kim Hong-gyun, a researcher at DB Financial Investment, explained in a report on the 28th, “The railway sector incurred an operating loss of about 77 billion KRW,” adding, “The largest impact was a delay penalty of 25 billion KRW from domestic Korail, and additional costs were reflected in India, Tunisia, Australia, and other regions.” Sales in the plant sector increased due to the recognition of oxygen plant facilities, reducing the loss to an operating loss of about 3 billion KRW.

Although a return to profitability is possible this year due to increased sales in the railway sector, the extent is not expected to be large. Last year, the railway sector achieved new orders worth 1.688 trillion KRW, which is 27.4% higher than sales. Researcher Kim explained, “There has been a notable increase in new orders in the railway sector over the past four years, and this year, orders are materializing in the domestic SRT old vehicle replacement, GTX-A, Egypt, Sydney, and other railway sectors.”

However, he added, “Last year, costs such as production delays and design changes occurred several times in domestic and overseas railway orders, and losses were recognized as production of domestic railway volumes ordered at low prices in 2017 began in earnest, so performance improvement in the railway sector needs to be confirmed this year as well.”

It is pointed out that it is necessary to approach while confirming performance improvement in the railway sector. As of the end of last year, the order backlog in the railway sector was 7.338 trillion KRW, a 10.4% increase compared to the end of 2018. Researcher Kim said, “Sales will increase this year due to increased production volume in the railway sector, but it is expected to take time to achieve meaningful profitability improvement,” adding, “The fourth quarter results of last year were reflected in the estimates, but it was not enough to change the target stock price.”

This content was produced with the assistance of AI translation services.