Hyundai Rotem, Top Priority for MSCI Inclusion Next Month, Rises Over 20% This Month

Hyundai Rotem has continued its strong performance, rising more than 20% this month alone. The stock's strength appears to be driven by its top priority status for new inclusion in the upcoming Morgan Stanley Capital International (MSCI) Korea Index regular review next month. Additionally, the strong trend in defense stocks and expectations for improved earnings due to export expansion are also reflected.

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According to the Korea Exchange on the 22nd, Hyundai Rotem closed at 65,700 won, up 700 won (1.08%) from the previous day. It has risen 22.57% so far this month. The stock price, which was in the 54,000 won range, has surged past the 65,000 won mark. On the 18th, it even reached an intraday high of 68,000 won, setting a new all-time high, continuously breaking records this month.

The rise in Hyundai Rotem's stock price is the result of several factors acting simultaneously. Among them, the likelihood of Hyundai Rotem's new inclusion in the MSCI regular review announced on the 7th of next month seems to be pushing the stock price up. Securities firms expect only one new inclusion in this review, and that stock is Hyundai Rotem. Dong-Young Kim, a researcher at Samsung Securities, said, "Only one stock is expected to be included, and we are assuming Hyundai Rotem's inclusion as the basic premise." He added, "As of the 18th, Hyundai Rotem's market capitalization was 7.1 trillion won, and its free float market capitalization was 7 trillion won, while the estimated cutoff for the November regular review is 3.9 trillion won." He continued, "Hyundai Rotem surpasses both the market cap and free float market cap inclusion hurdles, so its inclusion is almost certain."

Si-Hwa Han, a researcher at Hanwha Investment & Securities, also said, "We expect Hyundai Rotem to be the only stock included in this regular review," adding, "Since Hyundai Rotem's stock price rose 46.7% compared to the review assessment date on July 18, surpassing the upper buffer market cap threshold of 6 trillion won, and its market cap size has increased, it will move from the existing small-cap index to the standard index and be stably included."

Min-Kyu Jo, a researcher at Shinhan Investment Corp., analyzed, "In past rebalancing (constituent adjustment) results, stocks included in the index showed a rising trend in stock prices starting 60 trading days before the rebalancing date." He added, "Hyundai Rotem, expected to be included in November, rose 7.3% on August 13, the review announcement date, as the possibility of index inclusion became prominent."

Furthermore, the recent emphasis on geopolitical risks leading to a strong trend in defense stocks and expectations for earnings growth due to export expansion have also acted as driving forces behind Hyundai Rotem's stock price rise. Kiwoom Securities expects Hyundai Rotem's third-quarter earnings this year to exceed market forecasts, with sales increasing 20.6% year-on-year to 1.1177 trillion won and operating profit soaring 222.6% to 132.6 billion won. Han-Gyeol Lee, a researcher at Kiwoom Securities, said, "Following the second quarter, the third quarter is expected to continue its earnings growth, supported by increased sales of K2 tanks to Poland." He added, "Negotiations for the second contract of K2 tanks with Poland are progressing smoothly, and Hyundai Rotem is also participating in Romania's new tank project, with export contracts expected next year. If the second contract with Poland and the Romanian tank project are successfully secured, the order backlog in the defense sector will more than double compared to the end of the first half of this year."

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