Samsung Securities has reduced its target price for Hyundai Rotem from 250,000 won to 156,000 won, a decrease of 37.6%, reflecting delays in overseas export orders and uncertainties in future business prospects. However, the firm maintained its 'buy' rating, noting that recent stock price declines have largely accounted for concerns about growth.
Han Young-soo, a researcher at Samsung Securities, stated in a report that "Hyundai Rotem's recent stock performance has been the weakest among major domestic defense stocks," attributing this to ongoing delays in securing additional export contracts and disappointing results from projects that were expected to drive future growth.
In the third quarter of this year, Hyundai Rotem reported sales of 1.62 trillion won, a slight increase of 0.1% compared to the same period last year, but falling short of market expectations by 10%. Operating profit was 247 billion won, down 11% year-on-year. However, the operating profit margin in the defense, robotics, and hydrogen sectors improved to 28.1%, up from 24.5% in the previous quarter, indicating solid profitability.
The main issue remains the delay in additional export contracts. Hyundai Rotem is pursuing export agreements with Romania, Peru, and Iraq, but local political changes and financial issues have made it difficult to predict contract timelines. The company also failed to secure contracts for the development of a multipurpose unmanned vehicle and a long-range air-to-air missile system for the KF-21 this year.
As a result, Samsung Securities has adjusted its profit forecast for next year downward by approximately 24%, taking into account the strengthening of the won and the potential for further delays in export contracts.
Han noted, "For stock price recovery, it is essential to diversify regions through additional export contracts or diversify products through future project acquisitions," adding that a valuation discount is likely to persist for the time being. However, he also mentioned that "most concerns about growth have already been reflected in the recent stock price decline," and that Hyundai Rotem is currently trading at a significant discount compared to domestic and international defense companies, indicating sufficient valuation appeal.
* This article has been translated by AI.
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