Is There a Defense Stock That Benefits Only When the Middle East War Ends? [Weekend Money]

Hana: "Ceasefire Could Ease Budget Concerns Over Iraq's K2 Tank Acquisition"

Unlike most defense stocks, which typically rise in the event of war, there are defense stocks expected to benefit when the U.S.-Iran war comes to an end.

Hana Securities maintained its target price for Hyundai Rotem at 283,000 won and a 'buy' rating, stating, "There are now more reasons to expect an end to the war."

Hyundai Rotem's Middle East variant K2 tank. Hyundai Rotem

The reason a ceasefire is cited as a positive factor is due to Iraq's potential adoption of tanks. Hana Securities analyst Chae Woonsam explained, "Iraq's intention to introduce the K2 tank remains strong, but recently, some budget-related issues have emerged. However, since Iraq covers a significant portion of its national finances through crude oil exports, if ceasefire negotiations between the U.S., Israel, and Iran progress positively, related concerns may be alleviated. Taking this into account, we continue to view Hyundai Rotem as a stock that could benefit from the end of the war."

Regarding Hyundai Rotem's share price, which is currently moving sideways, the firm analyzed, "At the lower end, relatively attractive valuations are stimulating buying interest, while at the upper end, concerns about the timing of potential orders from Iraq—which could significantly influence operating results in 2027 and 2029—are prompting selling pressure."

The company forecast that both revenue and operating profit will grow in the second half of this year. It expects revenue for the second half to reach 3.7 trillion won, up 14.2% year-on-year, and operating profit to rise 22.5% over the same period to 668.1 billion won.

As for the core business segment, Defense Solutions, sales are projected to increase by about 20% year-on-year to around 2.2 trillion won. Analyst Chae noted, "While several domestic projects, including the second mass production of wheeled command vehicles, are approaching contract completion in the second half, the gradually increasing contribution from projects that have already been announced will likely maintain the typical pattern of stronger performance later in the year."

On exports, he said, "We estimate that revenue growth from the K2 EC2 project for Poland will lead the way," adding, "As the EC2 project for Poland moves past its initial phase, improved profitability over the first half will be a key factor."

Regarding the Rail Solutions division, the firm commented, "We expect the improvement in the sales mix to continue, driven by an increased proportion of high-margin overseas sales, which should result in greater profitability compared to the first half."

This content was produced with the assistance of AI translation services.