[This Week's Hot Stock] Hyundai Rotem Accelerates with K2 Tanks: "No Concerns Over Earnings Outlook"

Record-High Third Quarter Results Driven by K2 Revenue Recognition
"Potential for Orders Beyond Poland Also on the Rise"

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Hyundai Rotem posted strong results in the third quarter, driven by robust sales in its core business division, Defense Solutions. The outlook remains positive, as the company is expected to continue its growth trajectory by diversifying export destinations beyond Poland to include Iraq, Romania, and other regions. Securities firms are also raising their target prices for Hyundai Rotem in rapid succession.

Record-High Q3 Performance Driven by K2 Deliveries to Poland

Hyundai Rotem originated from Hyundai Precision, which was established in 1977. In 1999, the railcar divisions of Hyundai Precision, Daewoo Heavy Industries, and Hanjin Heavy Industries merged to form Rotem. After joining the Hyundai Motor Group in 2001, the company changed its name to Hyundai Rotem in 2007.

The company’s main businesses are Defense Solutions, Rail Solutions, and Eco Plant. The Defense Solutions division handles comprehensive weapons systems, space launch vehicles, and next-generation unmanned systems, covering the entire defense industry. The Rail Solutions division is responsible for manufacturing high-speed trains and various rail vehicles, providing rail system solutions, and operating and maintaining railways. The Eco Plant division manufactures and sells hydrogen infrastructure solutions, industrial robotics and presses, and eco-friendly steelmaking facilities.

In the third quarter of this year, Hyundai Rotem recorded sales of 1.6196 trillion won and operating profit of 277.7 billion won, up 48.1% and 102.1% year-on-year, respectively. Both sales and operating profit marked all-time highs for a single quarter.

Breaking it down, Defense Solutions sales reached 936.1 billion won, a 48% increase from the same period last year. This surge was attributed to the production of the first batch of K2 tanks for Poland. Meanwhile, the Rail Solutions division posted sales of 540.6 billion won, up 32.4% year-on-year. The improvement is seen as a result of both domestic and overseas businesses entering mass production phases.

Chae Woonsam, a researcher at Hana Securities, commented, "The core Defense Solutions division continues to see steady domestic growth. The rate of progress for K2 exports to Poland has expanded significantly compared to both the previous year and the previous quarter, which appears to have driven growth."

Bae Sungjo, a researcher at Hanwha Investment & Securities, also noted, "This quarter, revenue recognition for K2 tanks destined for Poland accelerated. The export operating margin (OPM) declined compared to the first half of the year, which is interpreted as being due to development and initial costs related to the rollout of the second phase of the Poland project."

Strong Performance Expected to Continue in Q4 and Next Year

The securities industry expects Hyundai Rotem to maintain high growth in the fourth quarter and into next year. According to FnGuide, the consensus forecast for Hyundai Rotem’s fourth-quarter sales and operating profit is 1.6392 trillion won and 304.6 billion won, up 13.77% and 88.38% year-on-year, respectively. For next year, sales are projected at 6.8971 trillion won and operating profit at 1.3231 trillion won, representing 20.65% and 27.69% growth, respectively, over the previous year.

Amid these expectations for improved performance, securities firms are racing to raise their target prices. As of November 4, 14 securities firms had released reports on Hyundai Rotem, with 10 of them raising their target prices.

The driving force behind this year’s and next year’s improved results is the K2 tank orders for Poland. Previously, Hyundai Rotem signed a contract in 2022 with the Polish Armaments Agency to export domestically produced K2 tanks. In August of this year, it secured a second contract worth 9 trillion won. Byun Yongjin, a researcher at iM Investment & Securities, emphasized, "Currently, we are responding to Polish demand by producing about 90 to 100 units annually. After the Bumar plant in Poland is ready in 2027, this pace could accelerate further, and we believe that for at least the next five years, there will be no decrease in production volume for Poland."

Researcher Chae added, "In the fourth quarter, operating profit is expected to show strong growth based on expanded exports to Poland. Even in 2026, we anticipate continued earnings growth. Although the first-phase contract for Poland will be completed, the increased volume from the second-phase contract, which will be produced consecutively, is expected to offset any gap and drive sales growth."

Potential for K2 Orders in Regions Beyond Poland

Continued growth in orders is also supporting improved performance. As of the third quarter, the order backlog for Defense Solutions stood at 10.7897 trillion won. The Rail Solutions order backlog was 18.0028 trillion won. The total order backlog reached 29.6088 trillion won, a 56% increase from the same period last year. Additional orders are expected for the Defense Solutions division, as the potential for K2 exports is increasing not only to Poland but also to Romania, Peru, and Iraq.

Jung Dongho, a researcher at Mirae Asset Securities, explained, "There is a growing likelihood of additional K2 exports to various regions such as Iraq, Romania, and Peru. Since there are unlikely to be significant differences in product specifications, we continue to expect further K2 export deals and an increase in deliveries next year."

Researcher Chae emphasized, "From the perspective of purchasing countries, the realistic options are tanks from the United States, Germany, or Korea, which means there is a real possibility these discussions will lead to actual purchases. If large-scale overseas orders are secured by the first half of 2026, uncertainty regarding profit growth for 2027 to 2029 will be resolved, and there is a possibility of a rapid increase in market capitalization in a short period."

The performance of the rail division is also expected to continue improving. Researcher Jung noted, "Most overseas projects to be recognized between 2026 and 2028 are high-profit projects selected based on technological competitiveness such as quality and delivery. Rail sales growth is expected to exceed 25%, and the operating margin is projected to improve gradually from 1-2% to 5-7%."