[Click eStock] "Hyundai Rotem Expected to Post Record-High Q2 Operating Profit... Target Price Raised"

Target Price Raised by 29% Compared to Previous Estimate

On June 11, NH Investment & Securities stated that Hyundai Rotem is expected to post its highest-ever quarterly operating profit in the second quarter of this year, and raised its target price from 150,000 won to 194,000 won. The investment opinion was maintained as 'Buy'.

Lee Jaekwang, a researcher at NH Investment & Securities, explained, "We raised Hyundai Rotem's target price by 29% compared to the previous estimate. This is because the profitability of the second contract for K2 tanks with Poland, expected to be signed in late June, is likely to be higher than initially expected, which led us to raise our earnings estimates. In addition, we adjusted the EV/EBITDA multiple used to value the Defense Solutions division upward, in line with the re-rating of European defense stocks."

According to industry sources, the second contract for K2 tanks with Poland, worth $6 billion, is expected to be signed in late June. Lee said, "Initially, it was expected that the second contract would include a higher proportion of local production, which would reduce profitability compared to the first contract. However, as the local partner's production preparations have been delayed, the second contract is also expected to involve more direct export units, meaning that the current high level of profitability will be maintained." He added, "Furthermore, contracts with Slovakia, Romania, and countries in the Middle East are also underway, and the pace of negotiations is expected to accelerate after the second contract with Poland."

NH Investment & Securities estimates that Hyundai Rotem's second-quarter results will show sales of 1.23 trillion won, up 12.4% year-on-year, and operating profit of 211 billion won, up 87%. Lee commented, "We expect Hyundai Rotem to post its highest-ever quarterly operating profit for the second consecutive quarter. This is due to the increase in the number of K2 tanks delivered to Poland. Hyundai Rotem signed a first contract with Poland in 2022 to deliver 180 K2 tanks for about $3.4 billion. The company delivered 10 units in 2022, 18 units in 2023, and 70 units last year, and is expected to complete the delivery of 82 units this year."