[Click eStock] "Hyundai Rotem, K2 Tank Export Impact... Earnings Growth Expected"

KB Securities Report

On the 25th, KB Securities maintained a buy rating on Hyundai Rotem and raised the target price by 13% to 42,500 KRW. This reflects the profitability of the K2 tank exports.

The company's core profit comes from K2 tank exports. Dong-ik Jeong, a researcher at KB Securities, stated, "Due to trade secrets and other reasons, profitability is not disclosed, but the operating profit margin of the K2 tank reaches about 27.5%," and analyzed, "Accordingly, the operating profit is estimated at 51.2 billion KRW." As of the fourth quarter of last year, the company delivered 10 K2 tanks, increasing the defense sector's export revenue from 7.3 billion KRW in the previous quarter to 186.4 billion KRW. The operating profit margin for domestic defense sales in the fourth quarter is estimated at around 7%, which, when applied to the defense sales revenue, results in a domestic segment operating profit of 18.3 billion KRW. Excluding this, the operating profit from exports is estimated at 51.2 billion KRW, with an operating profit margin of 27%.

The company is also expected to record a performance surprise in the second quarter. The anticipated operating profit is 87.1 billion KRW, significantly exceeding the market expectation of about 67.5 billion KRW. This is because, following the early delivery of five K2 tanks to Poland in March, an additional seven units were delivered in May, and these results are expected to be reflected in the second quarter. This year, the delivery of K2 tanks to Poland is estimated at 18 units, increasing to 56 units next year and 96 units in 2025. Researcher Jeong analyzed, "Based on high profitability, the company's operating profit is expected to surge from 147.5 billion KRW last year to 458.7 billion KRW in 2025."

Additionally, the company has various export projects ahead, including the export of K2 tanks to Romania and Lithuania, and the export of K808 wheeled armored vehicles to Poland. Researcher Jeong said, "If these projects lead to contracts, they will provide additional momentum to the stock price."