[Edaily Reporter Shin Ha-yeon ] On the 20th, SKSecurities lowered its target price for HYUNDAI ROTEM(064350)by 41.9% from 310,000 won to 180,000 won, reflecting third-quarter earnings that fell short of market expectations, as well as uncertainty regarding overseas orders and concerns about a slowdown in profitability next year. However, the firm assessed that concerns about a revenue gap next year could be alleviated by the early delivery of the K2 tanks to Poland. It maintained its “Buy” investment rating.

Han Seung-han, an analyst at SKSecurities, stated in a report released that day, “This reflects the stock price correction among South Korean defense stocks, increased uncertainty regarding the company’s order pipeline, and downward revisions to profit estimates and multiple adjustments due to a worsening product mix next year.”

HYUNDAI ROTEM’s third-quarter consolidated revenue was 1.6207 trillion won, up 0.1% year-over-year, while operating profit was 247.1 billion won, down 11.0%. Operating profit fell 10.5% short of the market consensus of 276.0 billion won.

The defense division, Defense Solutions (AD&RH), recorded revenue of 841.2 billion won and operating profit of 236.0 billion won. The operating profit margin stood at 28.1%, maintaining stable profitability despite a decline in the export share, driven by deliveries of K2 tanks and military supplies to Poland.

One analyst commented, “Despite the decline in the export share, the company demonstrated robust profitability thanks to stable margins from its export business, including deliveries of the K2 EC2 GF tanks and EC1 military supplies to Poland.”

The delivery schedule for the K2 tanks to Poland is also a key variable. HYUNDAI ROTEM plans to deliver 116 EC2 GF tanks—part of the second contract with Poland to be supplied prior to local production—at a rate of 58 units each in the second half of this year and next year.

There are concerns that the operating profit margin may decline next year due to an increased revenue share from the fourth domestic mass-production batch and the impact of exchange rates. However, concerns about a revenue gap are expected to be partially alleviated as the initial production schedule for the 64 EC2 PL units—which are to be produced locally in Poland—has been moved up.

An analyst stated, “The first batch of 64 EC2 PL units was originally scheduled for full-scale production in 2028, but plans have been moved up to the second half of 2027 at the client’s request.”

The analyst forecast that revenue and profit growth will be sustained starting in 2028, as production of existing contract volumes continues alongside new orders from Peru, Egypt, and Romania.

The recent acquisition of HYUNDAI WIA’s Defense Special Projects Division was also cited as a factor for mid- to long-term growth. The analysis suggests that vertical integration of core defense components will secure cost competitiveness while enabling business expansion into future battlefield technologies centered on unmanned and remote anti-drone systems, such as Remote Fire Control Systems (RCWS), Active Protection Systems (ADS), and Close-In Weapon Systems (CIWS).

However, analysts noted that for the stock price to be revalued, concrete results from overseas orders are necessary. The K2 project in Peru is expected to undergo review and approval by the local Congress this November, with a high likelihood that the contract will be signed early next year. In Romania as well, with the project set to gain momentum following the inauguration of the new government, an order is expected in the first half of next year.

On the other hand, the report assessed that concerns regarding the likelihood and timing of a contract for the Iraq project have grown due to political and financial uncertainties and the protracted conflict in the Middle East.

One analyst emphasized, “Once the order momentum for the K2 projects in Iraq and Romania—where uncertainty still remains—begins to gain traction, a re-rating based on medium- to long-term profit growth driven by secured export volumes will be possible,” adding, “Until then, a conservative approach is necessary.”

Earnings forecasts were also revised downward. SKSecurities lowered its forecast for HYUNDAI ROTEM’s consolidated revenue this year by 6.0%, from 6.844 trillion won to 6.435 trillion won. The operating profit forecast was revised downward by 12.7%, from 1.136 trillion won to 992 billion won.

Revenue for next year is projected at 7.0201 trillion won, and operating profit at 1.0355 trillion won. These figures represent a 13.5% and 31.0% reduction, respectively, compared to previous estimates. The operating profit margin for next year was also revised downward from 18.5% to 14.8%.

One analyst noted that a conservative approach is necessary until uncertainties regarding overseas orders are resolved, but once a stable export volume is confirmed, a revaluation of the company’s value based on medium- to long-term profit growth will be possible.