[Click eStock] "Hyundai Rotem, Steady Earnings Growth... Target Price Up"

Target Price Raised by 45.8% Compared to Previous Level

Meritz Securities on the 18th raised the target price for Hyundai Rotem from 96,000 KRW to 140,000 KRW, citing steady earnings growth combined with expectations of new orders. The investment rating was maintained as 'Buy.'

Jiho Lee, a researcher at Meritz Securities, explained, "Reflecting the rise in applied book value per share (BPS) and applied price-to-book ratio (PBR), we are adjusting the fair price upward by 45.8%. Hyundai Rotem is on the verge of securing large-scale orders and additional export countries, along with steady earnings growth, while simultaneously experiencing a multiple expansion phase led by the European defense industry."

Hyundai Rotem's first-quarter performance this year is expected to meet market expectations. Lee said, "We expect first-quarter sales of 1.21 trillion KRW and operating profit of 188.9 billion KRW, in line with consensus (average securities firm forecasts), and anticipate maintaining a stable earnings growth trend."

It is analyzed that high profitability will be maintained until 2026. Lee forecasted, "This quarter's delivery volume of 26 units of K2 tanks to Poland suggests that the annual delivery target of 96 units can be achieved without difficulty. Upon securing the second contract with Poland, volumes beyond 2026 will also be secured, alleviating concerns about export gaps. High profitability is expected to be maintained until the second half of 2026, when local production is fully underway."

Discount recovery through securing additional export countries is anticipated. Lee stated, "Despite rapidly growing earnings, Hyundai Rotem records the lowest price-to-earnings ratio (PER) among domestic defense companies, which appears to be due to still insufficient export countries, but signs of resolution are gradually emerging. Following the second contract with Poland, expectations for a contract with Romania are high, and recently Slovakia signed a letter of intent to purchase K2 tanks manufactured in Poland, adding itself to the list of potential order countries. Additionally, entry into the Middle East based on parts localization is also possible, so multiple discount recovery through mid- to long-term diversification of export countries is expected."