[Click eStock] Hyundai Rotem's Outlook 'UP' with Large-Scale K2 Tank Orders

IBK Investment & Securities Report

[Asia Economy Reporter Minji Lee] IBK Investment & Securities maintained a buy rating on Hyundai Rotem on the 30th, expecting earnings growth due to a large-scale order of K2 tanks, and raised the target price by 37% to 37,000 KRW.

Hyundai Rotem announced that it had secured an order worth 4.5 trillion KRW (3.37 billion USD) from the Polish Military Procurement Office for the supply of K2 tanks. The contract period is until December 31, 2027. Although the number of units to be delivered was not disclosed, it is estimated that the first batch out of a total of 1,000 units will be 180 units.

The complete K2 tank order marks the first overseas contract, and it is expected that the main contract for local production of the second batch of 820 units in Poland is also under negotiation. Lee Sang-hyun, a researcher at IBK Investment & Securities, said, “Expectations for orders from several countries such as Norway, Egypt, and Morocco are also increasing,” adding, “Overseas exports are a valuation upgrade factor because the margins are higher than domestic sales.”

With the large-scale overseas order of K2 tanks, the sales scale of the Defense Solutions division is expected to increase from about 1 trillion KRW this year to an average of 2 trillion KRW annually during 2023-2025 when the first deliveries begin in earnest. From 2026 to 2031, when the second deliveries are in full swing, it is estimated to be around 3 trillion KRW annually. The growth of Defense Solutions is also expected to level up profitability.

This year’s earnings are estimated at 3.3 trillion KRW in sales and 145.3 billion KRW in operating profit, growing 16% and 81% respectively compared to the same period last year. Next year’s sales are projected to be 4.2 trillion KRW and operating profit 293 billion KRW, an increase of 28% and 102% compared to this year.

Finally, the researcher analyzed, “The previously high valuation indicators will enter an undervalued range due to the large-scale order of K2 tanks.”

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