[Click e-Stock] "Hyundai Rotem's Quarterly Operating Profit Surpasses 200 Billion Won... Target Price Raised"

On May 26, KB Securities designated Hyundai Rotem as its "top pick in the defense industry," raising its target price from 1.2 million won to 1.65 million won while maintaining a "buy" investment rating.

On this day, Jung Dongik, a researcher at KB Securities, stated, "This decision reflects the upward revision of earnings estimates and the resulting changes in the applied return on equity (ROE)."

In the first quarter of this year, Hyundai Rotem posted sales of 1.1761 trillion won and operating profit of 202.9 billion won, up 57.3% and 354.0%, respectively, compared to the same period last year. The operating margin was 17.2%. Jung emphasized, "This is the first time in the company's history that quarterly operating profit has surpassed 200 billion won," adding, "From now on, quarterly operating profit is unlikely to fall below 200 billion won."

In particular, sales in the highly profitable defense division surged 106.9% from 318 billion won in the first quarter of last year to 658 billion won in the first quarter of this year. Jung estimated, "The operating profit margin for defense exports in the first quarter is believed to have reached 38.3% (assuming a 7.5% operating margin for domestic defense)," and explained, "This is due to a combination of factors: high order margins stemming from the high unit price of competing products, improved productivity and reduced fixed costs from increased production volumes and a weaker won, as well as lower costs from bulk purchasing."

He continued, "As a result, the average operating profit margin for defense exports over the past four quarters has reached 33.1%," and projected, "Even taking into account a possible decline in the exchange rate, the operating profit margin for defense exports in the current order backlog is expected to remain above 30%."

Although contracts with Poland, Romania, and other countries have been delayed longer than expected, Hyundai Rotem is proceeding with material procurement, production, and facility expansion regardless of the timing of contract signings. Jung reported, "It appears that the company believes there is no issue with securing orders themselves, only with the timing. Accordingly, Hyundai Rotem's production of K2 tanks is expected to surge from 102 units last year to 161 units next year, and to 215 units in 2028 (reflecting only Poland and Romania contracts)."