Hyundai WIA Sells Defense Business, Reallocates Capital to New Ventures... Thermal Management, Robotics [Click eStock]

Hana Securities Says "Buy" Despite Target Price Cut

Hana Securities said on October 20 that it was lowering its target price for Hyundai WIA, which makes automotive engines and thermal management components, by 14.5% from KRW 83,000 to KRW 71,000. The adjustment reflects slowing demand in end markets and a decline in valuations across the industry. However, it maintained its “Buy” rating, citing 36.3% upside from the current share price of KRW 52,100.

Hyundai WIA had previously decided to transfer its defense (special) business division to Hyundai Rotem for KRW 358.4 billion in cash. The division makes defense components, including K2 tank cannons, barrels for K9 self-propelled howitzers, naval guns, and landing gear for the T-50. The transfer is scheduled for March 31, 2027.

According to Song Seon-jae, an analyst at Hana Securities, the division recorded revenue of KRW 393.1 billion and an operating margin of 10.2% last year. In the first half of this year, it accounted for 5% of total revenue and 22% of operating profit. The transfer price is based on a business valuation of KRW 480 billion minus KRW 121.6 billion in assets, including real estate, that are not part of the sale. It is equivalent to 12 times this year's estimated net profit.

After selling its machine tool business last year, Hyundai WIA is continuing to divest non-core businesses and shift its business structure toward mobility, including automobiles. The cash proceeds from the sale will be invested in growth areas such as thermal management and robotics. The company aims to reach KRW 14.8 trillion in revenue by 2035, with growth businesses accounting for 27%, or about KRW 4 trillion.

Third-quarter results are expected to meet estimates. Revenue is forecast to rise 10% year over year to KRW 2.36 trillion, while operating profit is expected to increase 2% to KRW 52.9 billion. Lower Russian engine volumes and a weaker exchange rate will weigh on results, but increased hybrid electric vehicle (HEV) engine volumes from its Mexico plant and higher thermal management revenue are expected to offset those factors. The operating margin is forecast to fall 0.2 percentage points year over year to 2.2%.

“In the short term, it is disappointing to see a high-margin business being sold,” Song said. “However, we will expand investment in thermal management and robotics using the funds raised, and as the results of our growth businesses become more visible, we expect their valuation to rise as well.”

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