Share Price Plunges on Earnings Shock... Target Prices for Hyundai Rotem Lowered Across the Board [Click e-Stock]

Domestic securities firms have collectively lowered their target prices for Hyundai Rotem. This stems from the company’s second-quarter earnings failing to meet market expectations, as well as delays in signing overseas export contracts. However, some analysts note that the company’s long-term growth prospects remain valid, and suggest that the current stock price, which has declined by double digits compared to the beginning of the year, could be viewed as a buying opportunity.

According to the financial industry on July 28, Korea Investment & Securities, Samsung Securities, Shinhan Securities, Daishin Securities, DS Investment & Securities, iM Investment & Securities, Daol Investment & Securities, and BNK Investment & Securities all issued reports on Hyundai Rotem the previous day, lowering their target prices. This is attributed to Hyundai Rotem’s second-quarter results falling well short of expectations, which sharply dampened investor sentiment. The previously released second-quarter revenue increased by 13.3% year-on-year to 1.6061 trillion won, but operating profit decreased by 9.8% to 232.4 billion won. This figure is about 14% below the market consensus.

The decrease in operating profit is attributed to a number of factors: an increase in lower-margin domestic supply, delays in overseas orders, and sluggish performance in the rail business. Namhyun Jang, a researcher at Korea Investment & Securities, noted, “Despite expanded revenue recognition from the second phase of the Poland project, the defense segment’s profitability weakened temporarily because it is lower than the first phase.”

Korea Investment & Securities cut its 2027 operating profit estimate by 19.7%, and lowered its target price by 15.6%, from 320,000 won to 270,000 won, reflecting the delays in securing new export contracts and other factors. Samsung Securities also reduced its target price from 306,000 won to 250,000 won. Shinhan Securities lowered its target from 290,000 won to 230,000 won, while iM Investment & Securities revised its target from 320,000 won to 280,000 won. Daishin Securities set a target price of 240,000 won, DS Investment & Securities set 236,000 won, and BNK Investment & Securities suggested 250,000 won.

However, analysts say that this earnings shock is only a short-term setback, and future earnings concerns are not significant. Youngsoo Han, a researcher at Samsung Securities, commented, “The defense margin contraction is a temporary result of changes in the sales structure. The poor performance in the rail business should be viewed in the context of its low contribution to overall profits,” adding, “It is not yet time to worry about the company’s annual results.” He continued, “Changes in the valuation of the entire sector are unavoidable,” but added, “At the current price level, there is little risk, and it’s worth waiting for positive news about overseas orders, such as in Peru or Poland.”

Dongheon Lee, a researcher at Shinhan Securities, also noted, “Despite the time lag in defense exports, temporary earnings declines, and slow growth in the rail business, the overall big picture remains unchanged.” He predicted, “With the smooth progress of the second phase of the Poland project, discussions with various countries are expanding, a recovery in defense orders is expected in the second half of the year, and rail business growth will likely accelerate from 2027.” Researcher Jang said, “Given competitors’ supply capacity, the likelihood of winning contracts remains high. If a contract is secured, the operating profit estimate will be revised upward.” He added that with the start of K2 tank deliveries to Poland from the third quarter, the export business’s profit margin is expected to improve by more than 5.5 percentage points.

Yongjin Byun, a researcher at iM Investment & Securities, noted, “While the short-term visibility of large-scale defense export orders, which the market expects from defense companies, is somewhat limited, the long-term growth prospects remain valid.” He added, “The current stock price, down 18% from the beginning of the year, is attractive from a long-term investment perspective,” and recommended that investors with a longer time horizon actively consider this as a buying opportunity.

Meanwhile, on the previous day, Hyundai Rotem’s share price closed at 132,500 won, down more than 16% from the previous session. At one point during trading, shares fell below the 130,000 won level, marking a new 52-week low.

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