[Click eStock] "Hyundai Rotem, Top Defense Industry Pick for Second Half... Target Price Up"

Target Price Raised by 22% Compared to Previous Estimate

On the 29th, Korea Investment & Securities presented a top pick opinion for the defense sector in the second half of the year regarding Hyundai Rotem and raised the target stock price from 50,000 KRW to 61,000 KRW. The investment opinion was maintained as 'Buy.'

Jang Nam-hyun, a researcher at Korea Investment & Securities, said, "The target price was raised by 22.0% compared to the previous one, reflecting the upward revision of earnings estimates. Hyundai Rotem has the most visible export pipeline among defense companies in the second half of this year, but it is the most undervalued in the sector with a 12-month forward price-to-earnings ratio (PER) of 12 times. We believe it is a good time to buy without burden and present it as the top pick in the defense sector for the second half."

Hyundai Rotem's second-quarter earnings this year exceeded market expectations. On a consolidated basis, second-quarter sales were 1.0945 trillion KRW, and operating profit was 112.8 billion KRW. These figures represent increases of 10.9% and 67.7%, respectively, compared to the same period last year. Researcher Jang analyzed, "Compared to the consensus (average securities firm forecast), sales and operating profit exceeded by 10.5% and 36.4%, respectively. The reason operating profit significantly exceeded market expectations is twofold: first, a one-time settlement gain of 11 billion KRW occurred, and second, the profit margin of the Polish K2 tank export project was higher than previously expected."

Good performance is expected to continue until next year. Researcher Jang stated, "The high operating profit margin of overseas defense sales is not due to one-time factors but reflects the ordinary profitability recognized from the progress of Polish K2 sales, which began in earnest from the second quarter. Such favorable overseas defense operating profit margins are expected to continue until the fourth quarter of next year." He added, "Considering this, we have raised Hyundai Rotem's operating profit estimates for 2024 and 2025 by 12.8% and 16.1%, respectively." Accordingly, operating profit for this year is estimated at 397.7 billion KRW, an 89.4% increase from the previous year, and operating profit for next year is estimated at 589 billion KRW, a 48.1% increase.

Exports are expected to support the performance. Researcher Jang explained, "Amid steep performance growth scheduled until 2025, Hyundai Rotem has a large export pipeline that can be signed within this year. An additional contract for the Polish K2 tank worth 4.5 trillion KRW is expected to be signed within this year, and negotiations for K2 tank exports with Romania are currently underway, with the contract amount expected to exceed 5 trillion KRW."

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