[Click eStock] "Hyundai Rotem, Q1 Earnings Surprise Expected"... Target Price Up

Target Price Raised by 18.8% Compared to Previous Level

On the 9th, KB Securities raised the target price for Hyundai Rotem from 40,000 KRW to 47,500 KRW, expecting another earnings surprise in the first quarter of this year. The investment rating was maintained as 'Buy.'

Jung Dong-ik, a researcher at KB Securities, explained, "The target price adjustment reflects the upward revision of earnings estimates, changes in the 12-month forward period, and changes in the one-year Treasury bond rate used as a proxy for the risk-free rate. Despite the recent stock price increase, the target price adjustment secures a 25.7% upside potential compared to the closing price on the 8th, so the investment rating remains a buy."

An earnings surprise is expected in the first quarter. Researcher Jung said, "Hyundai Rotem's first-quarter performance is expected to record sales of 801.2 billion KRW, up 17.1% year-on-year, and operating profit of 59.1 billion KRW, up 85.1%, marking another earnings surprise following the fourth quarter of last year. Despite a decline in sales in the railway sector due to the completion of large projects, the delivery of 18 units of the K2 tank to Poland in the first quarter, out of a total of 56 units scheduled for delivery this year, is estimated to have driven the performance improvement." The export sales revenue of the K2 tanks reflected in the first-quarter results is estimated to be around 270 billion KRW, and the remaining four units, based on delivery recognition, will be reflected in the second quarter's sales.

Expectations for the second contract with Poland are growing. Researcher Jung analyzed, "Out of the total 1,000 K2 tanks agreed upon with Poland in 2022, excluding the 180 units reflected in the first contract, the remaining 820 units have not yet been bound by a contract due to delays in the amendment of the Export-Import Bank Act and financial provision issues. However, with the passage of the Korea Export-Import Bank Act amendment in the National Assembly and commercial banks agreeing to provide 10 trillion KRW in funding, expectations for the second contract with Poland are increasing."

Following the earnings momentum, order momentum is also expected to be highlighted. Researcher Jung forecasted, "Once the second contract with Poland is finalized, procurement projects in neighboring countries such as Romania are expected to accelerate. Romania is expected to begin K2 tank live-fire testing from May 10 to 16 and will actively proceed with the new tank procurement project. Additionally, the Korean military plans to place an order for the fourth mass production project totaling 150 units this year, so expectations for large-scale K2 tank orders will continue this year."