[Edaily Reporter Kim Hyung-il ] HEUNGKUK METALTECH CO.,LTD. has initiated coverage of HYUNDAI ROTEM(064350), issuing a “Buy” rating and a target price of 200,000 won. Although stock price volatility has increased due to market conditions, the firm forecasts that earnings growth will continue in the medium to long term, driven by an increase in overseas defense orders and a high order backlog in the railway sector.

On the 5th, Choi Jong-kyung, an analyst at HEUNGKUK METALTECH CO.,LTD., noted, “Second-quarter revenue reached 1.606 trillion won, a 13.3% increase year-over-year, but operating profit fell 9.7% to 232.4 billion won, missing market expectations (270.6 billion won) by 14%.”

He added, “Revenue for the core AD&RH division stood at 918.9 billion won, with operating profit at 224.8 billion won; the division’s operating profit margin was 24.5%, down 2.3 percentage points from the previous quarter,” explaining that "This was the result of a shift in the revenue mix due to increased domestic delivery volumes, as well as the base effect from reduced costs following the completion of the first implementation contract (EC1) for the K2 tank in Poland last quarter," the firm explained. It also assessed that the Railway (RS) and Eco-Plant (EP) businesses are demonstrating stable growth based on a robust order backlog.

HEUNGKUK METALTECH CO.,LTD. assessed that the momentum for securing tank orders—starting with revenue from the second implementation contract (EC2) for the Polish K2 tanks this year, followed by orders from Iraq and Peru this year and Romania next year—remains valid. However, the firm noted that the delay in securing orders compared to what investors had initially anticipated is somewhat disappointing. While the timing of the order from Romania has been delayed due to the delay in forming a new government, the firm projected that the project will take shape sometime next year once the government stabilizes.

The firm analyzed that significant order opportunities exist not only in the defense sector (AD&RH) but also in the RS business. The key pipeline is the U.S. MTA procurement project, which involves up to 2,390 units including options and is currently proceeding with the goal of a 2027 bid. Additionally, the firm projected that starting next year, sales to Morocco—which are more profitable relative to domestic sales—will be reflected in the results, contributing to improved profitability.

Research Analyst Choi stated, “As of the second quarter, the total order backlog reached approximately 30 trillion won, setting a new all-time high.” He added, “This is expected to be reflected in revenue sequentially and support sustained revenue growth,” noting that “the stock is also in an attractive range from a valuation perspective.”