Nearly 7-Year Delay in Contract Signed with Istanbul City in 2016
Agreement Rewritten but Scale Halved... Defense Sector Outlook Remains Bright
Hyundai Rotem's electric train project, originally contracted from T?rkiye about 7 years ago for approximately 360 billion KRW, is being relaunched at about half the original scale.
According to the Financial Supervisory Service's electronic disclosure system on the 18th, Hyundai Rotem corrected the contract amount for the T?rkiye electric train supply project from the original 359 billion KRW to 172.3 billion KRW as of the previous day. This figure was calculated based on the won-euro exchange rate at the time of the contract about 7 years ago (1 euro = 1,281.19 KRW). Considering the increased exchange rate (approximately 1,451 KRW as of May 16), the actual revenue in won is expected to be even lower.
The project is based on a contract Hyundai Rotem signed with the Istanbul Metropolitan Municipality in April 2016. At that time, the contract size accounted for 10.8% of Hyundai Rotem's annual sales, drawing significant attention. The plan was to supply electric trains by April 2021.
However, the introduction of new electric trains in Istanbul was continuously delayed, and the project did not proceed. When the original contract end date of April 21, 2021, arrived, Hyundai Rotem issued a correction notice without specifying a contract end date, stating that "negotiations are ongoing with the Turkish client regarding changes to the delivery schedule and contract." The project was indefinitely postponed.
Fortunately, a new agreement was recently signed with the Turkish side, allowing the project to move forward, but the project scale was drastically reduced to less than half. The contract end date is now June 2026. A Hyundai Rotem official said, "There seemed to be controversy over whether to maintain the project locally," adding, "The local project authority judged that the quantity of (electric trains) needed was less, so the final contract scale was adjusted." He further explained, "Since deliveries have not yet been made, this project is not reflected in existing sales," and added, "There is no loss incurred due to the reduced contract scale."
The rail solutions division, including electric trains, accounts for more than half of Hyundai Rotem's annual sales. Last year, about 56% of the total annual sales (3.163 trillion KRW), or 1.779 trillion KRW, came from the rail solutions division. The significant reduction in the scale of the T?rkiye electric train project is expected to have some impact. On this day, Hyundai Rotem's stock price closed at 31,150 KRW, down 5.45% from the previous trading day.
However, looking at sales growth, the defense sector, led by the K2 tank, is gaining attention, indicating a relatively bright mid-to-long-term outlook. Lee Sang-hyun, a researcher at Hi Investment & Securities, said, "Overseas orders for the K2 tank are expected to increase significantly, accelerating sales growth," and added, "With profitability improvements accompanying this, a turnaround in performance is expected from the second quarter of this year."
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