Hyundai Rotem’s earnings, shares set to rise; defense deals in the offing

Hyundai Rotem Co., a South Korean railway system and defense equipment maker under Hyundai Motor Group, is expected to clinch large defense deals in the coming months, boding well for its earnings and share price movement, analysts said.

Data showed on Thursday that the Hyundai Motor Co. subsidiary had 19 trillion won ($14.2 billion) in order backlogs at the end of June, up 14.3% from 16.6 trillion won a year earlier.

Given a couple of defense deals that Hyundai Rotem is currently negotiating with its clients, its order backlog is expected to grow by the end of this year, analysts said.

The company is in talks to supply a second batch of its K2 battle tanks worth 4 trillion won to Poland.

Hyundai Rotem is also awaiting the announcement of the preferred bidder for Morocco's high-speed railway project, for which the Korean firm made a bid.

Hyundai Rotem CEO Lee Yong-bae recently visited Morocco to lead negotiations with the government of the North African country.

"The preferred bidder for the 2 trillion won high-speed rail project in Morocco is expected to come out in October,” said Jeong Dong-ho, a Mirae Asset Securities Co. analyst.

PAST DEALS

Hyundai Rotem has been exporting its railway and defense systems globally.

In mid-August, it signed a $177 million contract to supply rail cars to the Massachusetts Bay Transportation Authority (MBTA) for operation in Boston.

In February, it clinched a $663.7 million deal to build electric trains for the Los Angeles County Metropolitan Transit Authority (LACMTA).

In 2022, Hyundai Rotem delivered 10 units of its K2 Black Panther, a next-generation battle tank, to Poland – part of its $3.4 billion deal to export 180 K2 tanks to the country, Korea’s first export of such battle tanks.

In 2021, the company signed a strategic partnership with Kongsberg Defence & Aerospace AS, Norway’s largest defense supplier, to jointly develop next-generation battle tanks.

MSCI INDEX INCLUSION

Hyundai Rotem is also being considered as a candidate for inclusion in the MSCI Korea Index.

"At this point, we expect Hyundai Rotem to be a strong candidate for MSCI index inclusion in the next regular review,” said Shinhan Securities Co. analyst Noh Dong-gil.

Shares of Hyundai Rotem closed at 53,500 won on Wednesday, off from an all-time intraday high of 55,800 won set on Aug. 22.

The company’s share price has more than doubled so far this year.

Earlier on Thursday, its shares were down 1.5% at 52,700 won, compared with the broader benchmark index Kospi’s 0.8% fall.

Hyundai Motor is the top shareholder of Hyundai Rotem with a 33.8% stake.

Write to Eunhyeok Ryu at ehryu@hankyung.com

In-Soo Nam edited this article.