(Photo= Yonhap news)

 

[Alpha Biz= Reporter Kim Jisun] On the 22nd, KB Securities raised its target price for Hyundai Rotem from 47,500 KRW to 55,000 KRW, stating that despite the company's high Return on Equity (ROE), its Price-to-Book (P/B) ratio is undervalued compared to other major defense stocks.

KB Securities estimated that Hyundai Rotem's operating profit for the second quarter of this year would reach 102.4 billion KRW, a 52.2% increase year-on-year, predicting an "earnings surprise." During the same period, the revenue is expected to increase by 5.6% to 1.042 trillion KRW. This would mark the first time in the company's history that quarterly revenue and operating profit each exceed 1 trillion KRW and 100 billion KRW, respectively.

The performance improvement is anticipated to be driven by the normalization of K2 tank export volumes in the second quarter, which had temporarily slowed in the first quarter due to increased production load for the South Korean military. KB Securities projects that Hyundai Rotem's quarterly performance will continue to set new records, driven by the increase in K2 tank delivery volumes.

According to KB Securities, the P/B ratio of major global defense stocks shows a strong correlation with ROE. However, despite Hyundai Rotem's high ROE, its P/B ratio is undervalued. This is attributed to the underperformance of the railway sector, passive investor relations (IR) activities, and delays in subsequent orders after the first Polish contract.

KB Securities emphasized that the railway sector's revenue share, which was 58.3% in 2021, is expected to fall below 30% next year, with most deficit projects resolved and additional orders approaching, making it an opportune time to buy.

 

 

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