"This Is the Cheapest Time": Which Defense Stock Is the Securities Industry Recommending? [Weekend Money]

Hyundai Rotem, the Only Major Defense Stock to Fall During the War

"Valuation Gap Presents a Buying Opportunity"

The war between the United States and Iran has drawn investors' attention to "K-defense stocks." In the securities industry, analysts believe that among domestic defense companies, Hyundai Rotem is currently undervalued, making this a good time to buy according to investment opinions.

Hyundai Rotem is the only stock that has not risen during the recent rally in defense stocks triggered by the war. While the share prices of major domestic defense stocks have increased by approximately 20% since the outbreak of the Iran war, Hyundai Rotem's stock price has actually declined. Youngsoo Han, a researcher at Samsung Securities, explained, "Hyundai Rotem was excluded from the momentum of increased U.S. defense spending that triggered the rebound in defense stocks earlier this year; there has been a lack of company-specific news to attract market interest; and there are concerns that the priority for tank purchases in Middle Eastern countries' defense budgets may be pushed back in favor of expanding air defense systems."

For these reasons, the securities industry views Hyundai Rotem's current valuation as relatively low. This year, its price-to-earnings ratio (PER) is 23, which is discounted compared to the domestic major defense stock average of 39. It is also considered attractive compared to the global major defense companies' average of 29 and the Korean industrial sector average of 39. Researcher Han added, "However, it should be taken into account that the domestic companies' potential benefits from increased U.S. defense spending are not yet certain, and the news that has sparked interest in competitors is still in the scenario stage and needs further verification."

Some believe that now is "the cheapest time," given the company's future growth potential. Namhyun Jang, a researcher at Korea Investment & Securities, projected Hyundai Rotem's consolidated sales for the first quarter to reach 1.4442 trillion won, up 22.8% year-on-year, and operating profit to reach 236.6 billion won, up 16.6%. This figure exceeds the market consensus for operating profit, which is 222.2 billion won. Jang noted, "The gradual improvement in profit margins for the defense export business and the increase in new orders are expected to start in the second half of this year," adding, "Actual contracts for the K2 tank export pipeline, including the third contracts with Iraq, Peru, and Poland, amounting to 20 trillion won, will drive growth in the order backlog."

Jang also emphasized, "New orders worth 20 trillion won are expected within the year, and profit margins will recover starting in the third quarter," and added, "This is the right time to take advantage of the valuation gap ahead of the resumption of earnings and order growth."

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