[Edaily Reporter Kim Hyung-il ] HYUNDAI MOTOR SECURITIES stated that while the medium- to long-term profit growth outlook for HYUNDAI ROTEM(064350)remains valid, the short-term stock price is expected to be affected by fluctuations in earnings tied to the timing of major defense contracts. The firm maintained its “Buy (BUY)” rating but lowered the target price by 29.6% from the previous 284,000 won to 200,000 won.

On the 11th, Baek Ju-ho, an analyst at HYUNDAI MOTOR SECURITIES, stated, “Second-quarter revenue was 1.61 trillion won and operating profit was 240 billion won, falling short of market expectations of 1.68 trillion won and 271 billion won by 4.7% and 11.4%, respectively,” and “The company secured a total of 2.5 trillion won in new orders, including 499.1 billion won for electric trains in Ho Chi Minh City, Vietnam, and 787.2 billion won for the Morocco Oil Refining Company (OMCS) E&U project,” he added.

HYUNDAI ROTEM’s order backlog increased slightly to 30.4 trillion won. This reflected the recognition of revenue from the second phase (EC2) of the Polish K2 tank project, as well as revenue from electric trains in Vietnam and Morocco and outsourced maintenance of K1-series tanks.

The AD&RH division, which handles defense, posted revenue of 918.9 billion won, up 20.7% year-over-year and 14.3% quarter-over-quarter. Operating profit stood at 224.8 billion won, down 9.3% year-over-year but up 2.7% quarter-over-quarter. The operating profit margin was 24.5%.

Analyst Baek explained, “The product mix deteriorated as the share of domestic sales rose from 25% in the first quarter to 28.8% in the second quarter,” adding, “In terms of export volume, the operating profit margin fell by 2.7 percentage points compared to the previous quarter as sales of the remaining EC1 units decreased while EC2 volumes increased.”

Regarding future defense orders, Poland, Peru, Iraq, and Romania were cited as key prospects. In Poland, preliminary preparations are underway to commence the EC3 implementation contract, while in Peru, working-level negotiations with the Army regarding the technical specifications and conditions of the implementation contract are reported to have made significant progress. In Iraq, although the delivery of K2ME prototype vehicles has been completed, progress in the first half of the year was delayed due to the formation of the new prime minister’s cabinet and the impact of the U.S.-Iran conflict. In Romania, an order is expected in 2027 due to delays in forming the government.

Researcher Baek stated, “In Peru, a contract is expected to be finalized in the second half of the year following the change in administration on July 28, while in Iraq, the company aims to achieve results in the second half by strengthening sales activities in coordination with the South Korean government.”

He added, “Our outlook for medium- to long-term profit growth remains unchanged based on major contract wins such as those in Peru, Iraq, and the EC3 project in Poland,” but noted, “In the short term, the stock price will be influenced by fluctuations in the AD&RH division’s 2027 performance, which depend on the timing of major defense contract awards.”

Finally, he added, “Going forward, the success of securing major defense contracts and the recovery of export margins will serve as triggers for a rise in the stock price,” noting, “If major defense contracts are secured, a price-to-earnings (P/E) ratio of 28—the upper limit—could be applied.”