"Sale Could Reach 370–880 Billion Won"... Why Is Hyundai Wia Considering Selling Its Profitable Defense Division? [M&A Insights]

Additional Business Restructuring Follows Machine Tool Sale

"Estimated Sale Value Ranges from KRW 370 Billion to 880 Billion"

"Securing Funds for New Businesses in Thermal Management and Robotics Is Key"

As the defense industry continues to boom, Hyundai Wia is considering selling its defense business division, which it has operated for over 50 years.

According to the investment banking (IB) industry on April 20, Hyundai Wia is reviewing a plan to sell its defense business division to Hyundai Rotem and has begun working-level discussions, aiming to complete the transaction within this year. Hyundai Wia has officially stated, "The matter is under review, but nothing has been decided yet." In this edition of M&A Insights, we examine both the reasons behind the decision to divest a thriving defense business and how the securities market is evaluating this move.

Main gun of the tank. Hyundai Wia website.

Half a Century in Defense, a Core Business Now Considered for Sale

Hyundai Wia's defense division has been in operation since the company's founding in 1976, focusing on large-caliber artillery such as the K9 self-propelled howitzer barrel and the K2 tank main gun. Defense sales nearly doubled from KRW 223 billion in 2023 to around KRW 400 billion last year, and the operating profit margin (OPM) has reached as high as 10%.

Although it accounts for only 5% of total company sales, the division is responsible for 20% of operating profit, making it a highly profitable business unit. With the full-scale recognition of the second batch of K2 tanks, the division has secured a visibility of more than 10% annual growth on average.

The sale of such a profitable business can be understood as a move to streamline operations within the group. The plan is to consolidate defense capabilities under Hyundai Rotem, allowing Hyundai Wia to focus on automotive parts and future businesses. Currently, Hyundai Rotem manufactures the K2 tank chassis and turret, but receives the main gun—the core firepower—from Hyundai Wia. If Hyundai Rotem absorbs the defense business division, it will achieve vertical integration of the firepower systems for tanks and self-propelled howitzers, thereby increasing its competitiveness in export bids through a comprehensive package offering.

Yoo Woong, an analyst at Daol Investment & Securities, commented, "Since around 2020, Hyundai Wia has been integrating fragmented business units and continuously refining its business structure. While operating margins for the automotive parts business, excluding defense, remain at just 2%, the sale could improve asset efficiency and accelerate the shift toward a future-industry-focused portfolio, making the move significant."

Attention is also being drawn to the fact that this is an additional restructuring review just nine months after the sale of the machine tool business in July last year. Kim Gwiyeon, an analyst at Daishin Securities, noted, "If the sale is realized, Hyundai Wia will be able to secure additional cash following the sale of the machine tool business. If the division is sold at a reasonable value, this could lead to increased funding, expanded investment in new businesses, visible results, and ultimately a higher corporate valuation."

KRW 370 billion to 880 billion... Valuation Depends on Method

The key issue is the sale price. Daishin Securities stated, "Since both Hyundai Wia and Hyundai Rotem are listed companies, the sale price will be determined fairly in consideration of the Capital Markets Act, the Fair Trade Act, and shareholder value." The value of Hyundai Wia's defense division is estimated at a minimum of KRW 370 billion and up to KRW 880 billion, depending on the valuation method. If the average 12-month forward PER (price-to-earnings ratio) of Korea's four major defense firms, which is 35.6 times, is applied with a 50% discount for unlisted status, the value is around KRW 550 billion; using the EV/EBITDA (enterprise value to earnings before interest, taxes, depreciation, and amortization) method, the value could reach as high as KRW 880 billion.

Even when applying the DCF (discounted cash flow) method, which estimates the present value of expected future cash flows from the division, the value is calculated to be about KRW 400 billion. Analyst Kim commented, "If the sale occurs at or above the Daishin Securities estimate of KRW 370 billion, expectations for expansion into new business areas will remain valid."

The capital raised is expected to be directed towards thermal management systems (TMS) and industrial robots. Analyst Yoo noted, "Hyundai Wia has already announced plans to expand strategic investments between 2026 and 2028, and these investments are highly likely to focus on TMS and industrial robots." TMS is a key component group that controls battery and powertrain temperatures in electric and hybrid vehicles, directly impacting vehicle efficiency and performance.

KRW 1 Trillion in Thermal Management, KRW 400 Billion in Robotics... Betting on Future Businesses

The goal is to expand the thermal management business from approximately KRW 100 billion last year to KRW 1 trillion by 2030. The industrial robot business, centered on automated guided vehicles (AGVs), autonomous mobile robots (AMRs), and collaborative robots, is also planned to grow from about KRW 100 billion annually now to KRW 400 billion by 2028. Analyst Yoo projected, "In the case of thermal management, there is potential for expansion beyond Hyundai Motor Group to other OEMs and applications, making it a potential core of Hyundai Wia's mid- to long-term growth story."

Target stock prices vary by securities firm. Daol Investment & Securities, factoring in the possible defense business sale, presented a target of KRW 140,000, while Daishin Securities suggested KRW 105,000. The closing price on April 17 was KRW 83,200. Analyst Yoo emphasized, "The current PBR (price-to-book ratio) is 0.6 times; the value of future businesses such as robotics and thermal management, which have been intensively nurtured since 2020, is still not fully reflected."

There are also short-term challenges. Analyst Kim pointed out, "The Iran war and the fire at an auto parts supplier in Daejeon could lower domestic factory utilization rates and impact second-quarter results." He also noted, "The sale of a high-margin business division may have a negative short-term effect on earnings."

Amid a boom in Korea's defense industry, the market is closely watching whether Hyundai Wia will sell its defense division to bet on thermal management and robotics, and what kind of results this choice will produce in 2027–2028.

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