[Click eStock] Hyundai Rotem, K2 Tank Export Is Key

Shinhan Investment Corp. maintained its buy rating on Hyundai Rotem on the 4th and raised the target price by 17% to 41,000 KRW.

Lee Dongheon, a researcher at Shinhan Investment Corp., explained, "Although there are doubts about profitability, expansion into overseas markets is an inevitable step," adding, "The railway market is recovering as past large-scale losses have been settled and order prices are normalizing, and Eco Plant can benefit from increased investment by the parent company." He continued, "The comfort of a stable portfolio is complemented by expectations for K2 tank exports."

Hyundai Rotem's sales in the first quarter of this year recorded 684.4 billion KRW, a 1% increase year-on-year, operating profit rose 35% to 31.9 billion KRW, and operating margin increased by 1.2 percentage points to 4.7%. Both sales and operating profit were 10% below consensus estimates.

The underperformance was mainly due to lower-than-expected sales in the railway sector and delays in the delivery of the Polish K2 tanks. However, increased production in the defense sector improved profits. In the second quarter, the delayed K2 exports are expected to be reflected, leading to improved performance.

Railway sector sales amounted to 369.2 billion KRW, down 15% year-on-year. Orders increased 382% year-on-year to 980.4 billion KRW, driven by projects such as Korail EMU-320 and the Kaohsiung project in Taiwan. Defense sector sales rose 42% to 260 billion KRW. Production increased due to the third batch mass production of domestic K2 tanks, and orders reached 381.4 billion KRW following the contract for mass production parts of the Turkish Altay tank. Eco Plant sector sales decreased 11% to 55.2 billion KRW, largely due to the completion of the Qatar project. Orders increased 234% to 252.1 billion KRW, supported by Hyundai Motor's increased investment.

The order backlog in the first quarter rose 43% year-on-year to 14.3 trillion KRW, largely due to a 5.5 trillion KRW increase from successful Polish exports in the defense sector. Considering delivery schedules, growth is expected to accelerate from the second quarter. The railway sector order backlog increased to 8.3 trillion KRW, but the long project durations have slowed sales growth. The researcher stated, "Ultimately, the export flow of the K2 tank will determine the stock price," adding, "Attention should be paid to the second Polish contract within this year."

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