[Click e-Stock] "Hyundai Rotem: Overseas Defense Sales Growth Continues... Target Price Raised"

Target Price Raised from 2.9 Million Won to 3.2 Million Won

On November 4, Korea Investment & Securities raised its target price for Hyundai Rotem from 2.9 million won to 3.2 million won, citing expectations that the growth in overseas defense sales will continue over the medium to long term. The firm maintained its 'Buy' investment rating.

Jang Namhyun, a researcher at Korea Investment & Securities, stated, "We have raised our target price by 10.3% compared to the previous level. The compound annual growth rate of earnings per share (EPS) from 2025 to 2027 is projected at 30.7%, surpassing the European peer average of 24.0%. In addition, the K2 tank export pipeline, which was previously limited to Poland, is now expanding to Europe, the Middle East, and Latin America. Considering the pace of profit improvement and the expansion of the export pipeline, there is no justification for a valuation discount."

In the third quarter of this year, Hyundai Rotem reported consolidated sales of 1.6196 trillion won, up 48.0% year-on-year, and operating profit of 277.8 billion won, an increase of 146.4%. Jang noted, "Compared to the consensus (the average of securities firms' forecasts), sales exceeded expectations by 10.4%, and operating profit was in line. The operating margin was 1 percentage point lower than market expectations, which appears to be due to additional export-related costs."

Profit growth continues to be led by the Defense Solutions division. Jang explained, "Third-quarter sales for the Defense Solutions division rose 60.1% year-on-year to 936.1 billion won, with an estimated operating margin of 28.2%. The Rail Solutions division is also gradually recovering, with sales up 32.4% to 540.6 billion won and an estimated operating margin of 1.6%," he said.

From next year, K2 tank exports are expected to ramp up significantly. The company is currently pursuing export contracts for the K2 tank with countries such as Iraq, Romania, and Peru. In addition, discussions on contracts for part of the remaining 640 units of the Polish K2 tank order are expected to begin in the second half of next year. Jang commented, "As export volumes are expected to increase, the need to secure production slots is growing. Accordingly, we expect the production schedule for the second batch of the Polish contract, which has already been finalized, to be moved forward. We estimate that more than 80 Polish K2 tanks will be produced in 2026, and as a result, operating profit in 2026 will reach 1.4283 trillion won, up 35.2% year-on-year."

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