KOSPIAerospace & Defense064350

Hyundai-Rotem

₩116,300▲ 3.38%2026-10-02 close

Market Cap

₩12.7T

Turnover

₩50.5B

Volume

440,000 shares

Shares out.

110M

PER

17.1×

PBR

4.1×

EPS

₩7,400

Dividend Yield

0.47%

PER, EPS, PBR and BPS are calculated in-house from the last 4 quarters (2025Q3–2026Q2) · Dividend yield is based on ₩600 per share · Prices as of the 2026-10-02 close

Report overview

Backlog Tops 30 Trillion, Margins on Trial

K2 tank exports lifted 2025 operating profit above the KRW 1 trillion mark, but in the first half of 2026 revenue kept growing while operating margin slipped, putting post-Poland order intake and product mix at the center of the debate.

1
For 2025 the company posted consolidated revenue of KRW 5,839.0 billion, operating profit of KRW 1,005.6 billion (17.2% margin) and net profit attributable to owners of KRW 770.0 billion, extending four straight years of top-line and profit expansion since 2022.
2
Quarterly operating margin fell for four consecutive quarters from 18.2% in 2Q25 to 14.5% in 2Q26, and 2Q26 operating profit of KRW 232.4 billion was down year on year.
3
Order backlog reached KRW 30,404.6 billion at end-2Q26, the first time above KRW 30 trillion, yet first-half new orders stayed around KRW 2.6 trillion (KB Securities, July 2026).
4
Profit is concentrated in defense: in 2Q26 the AD&RH division booked revenue of KRW 918.9 billion and operating profit of KRW 224.8 billion, while the rail division earned only KRW 3.7 billion on revenue of KRW 584.8 billion, a margin near 1%.
5
Multi-trillion-won pipelines in Iraq, Peru, Romania and a third Poland execution contract remain open, while expanding local production in Poland and slippage in large-order timing cut the other way.

Business structure

Hyundai Rotem was formed in 1999 by merging the rolling stock operations of three Korean heavy industry firms, joined the Hyundai Motor Group in 2001 and took its current name in 2007; it spans land weapon systems, rail vehicles and industrial plant equipment.

An organizational overhaul effective July 1, 2026 created the AD&RH division, combining the former Defense Solution unit with aerospace, robotics and hydrogen operations, alongside the Rail Solution (RS) and Eco Plant (EP) units.

In 2Q26 the segments reported: AD&RH revenue of KRW 918.9 billion with operating profit of KRW 224.8 billion; rail revenue of KRW 584.8 billion with operating profit of KRW 3.7 billion; and Eco Plant revenue of KRW 102.3 billion with operating profit of KRW 3.9 billion, so defense and rail split revenue while profit comes almost entirely from defense.

Core defense products include the K2 main battle tank and the K808 wheeled armored vehicle, with the Polish Armament Agency, which signed a 1,000-unit framework deal in 2022, and the Korean Army as the largest customers. Exports now account for more than 70% of defense division revenue (Financial News, July 2026).

The rail business splits between domestic high-speed and metro trains and overseas trains and maintenance; first-half 2026 awards included a Morocco train maintenance contract worth KRW 748.2 billion, Ho Chi Minh City Metro Line 2 trains worth KRW 491.1 billion, and K1 bridge-layer tank overhaul work worth KRW 198.5 billion.

Analysts note that the realistic alternatives capable of near-term volume tank delivery narrow to Korea's K2, Germany's Leopard and the US Abrams, while in rolling stock the company competes with large European, Chinese and Japanese groups.

Manufacturing runs through the Changwon plant, which houses both defense and rolling stock lines, the Uiwang headquarters and R&D center, and the Dangjin plant. During the first half of 2026 the company also regrouped its robotics and hydrogen organizations under a single umbrella.

Earnings trend

Quarterly revenue · Operating profit

₩1.4T₩257.6B25Q2₩1.6T₩277.7B25Q3₩1.6T₩267.5B25Q4₩1.5T₩224.2B26Q1₩1.6T₩232.4B26Q2

RevenueOperating profit

Annual revenue · Operating profit

₩3.2T₩147.5B2022₩3.6T₩210B2023₩4.4T₩456.6B2024₩5.8T₩1T2025

RevenueOperating profit

Quarterly results · Last 5 quarters
Quarter	Revenue	Operating profit	Op. margin
2025Q2	₩1.4T	₩257.6B	18.2%
2025Q3	₩1.6T	₩277.7B	17.1%
2025Q4	₩1.6T	₩267.5B	16.5%
2026Q1	₩1.5T	₩224.2B	15.4%
2026Q2	₩1.6T	₩232.4B	14.5%

Annual results
Year	Revenue	Operating profit	Net income (parent)	Op. margin	ROE	Debt-to-equity
2022	₩3.2T	₩147.5B	₩197.8B	4.7%	13.0%	223.4%
2023	₩3.6T	₩210B	₩161B	5.9%	9.6%	218.2%
2024	₩4.4T	₩456.6B	₩406.9B	10.4%	19.9%	163.1%
2025	₩5.8T	₩1T	₩769.9B	17.2%	25.0%	206.4%

Consolidated basis (financial statements including subsidiaries) · Final figures from DART filings · Net income attributable to owners of the parent · Data as of 2026-09-04

Earnings analysis

On confirmed figures, 2025 consolidated revenue was KRW 5,839.0 billion, operating profit KRW 1,005.6 billion and net profit attributable to owners KRW 770.0 billion, for a 17.2% operating margin.

That extended a run from 2022 revenue of KRW 3,163.3 billion and operating profit of KRW 147.5 billion (4.7%), through 2023 at KRW 3,587.4 billion and KRW 210.0 billion (5.9%), and 2024 at KRW 4,376.6 billion and KRW 456.6 billion (10.4%), meaning the margin roughly quadrupled in three years.

Cash generation improved as well, with 2025 operating cash flow of KRW 904.3 billion versus KRW 142.5 billion in 2024. In 2026, however, the margin direction reversed.

Quarterly revenue held up at KRW 1,417.6 billion in 2Q25, KRW 1,619.6 billion in 3Q25, KRW 1,625.6 billion in 4Q25, KRW 1,457.5 billion in 1Q26 and KRW 1,606.1 billion in 2Q26, but operating profit stalled at KRW 257.6 billion, KRW 277.7 billion, KRW 267.5 billion, KRW 224.2 billion and KRW 232.4 billion, taking the margin from 18.2% down to 14.5%.

Management attributed the 2Q26 outcome to product mix and a base effect from lower contingency costs than a year earlier; on a first-half basis revenue was KRW 3,063.5 billion, up 18.1% year on year, while operating profit of KRW 456.6 billion was down 0.8%.

By segment, the 2Q26 defense operating margin was 24.5% against roughly 1.0% for rail, where low-margin work booked about two years ago and extra costs from customer design changes are cited as the drag.

Net profit attributable to owners peaked at KRW 222.4 billion in 4Q25 before easing to KRW 201.4 billion in 1Q26 and KRW 185.3 billion in 2Q26.

On the balance sheet, the 2025 debt-to-equity ratio of 206.4% was lower than 218.2% in 2023, and the company said that its 1Q26 ratio of 188% falls to 54.7% excluding customer advances, with borrowings of KRW 109.5 billion against cash and equivalents of KRW 2,681.7 billion.

Industry analysis

With European rearmament overlapping with replacement demand for aging tanks in the Middle East and Latin America, many observers see main battle tank demand running ahead of supply capacity.

Among products able to deliver at scale in the near term, the field narrows to Korea's K2, Germany's Leopard and the US Abrams; management said it understands German tank capacity to be around three units a month and Abrams output around 60 units a year (Eugene Investment & Securities investor materials, May 2026).

Hyundai Rotem raised tank capacity roughly 25%, from 144 to 180 units a year, by converting part of the Changwon rolling stock plant site and workforce to defense (LS Securities, June 2026).

Of the 1,000-unit framework agreement with Poland, 360 units have been fixed through the first and second execution contracts, and the second contract signed in August 2025 (about USD 6.5 billion) moved into execution once financing led by Poland's state development bank was completed.

Pipeline sizes under discussion include Iraq at about KRW 9 trillion (250 units), Romania at about KRW 11 trillion (216 units), Peru at about KRW 3 trillion (54 K2 tanks and 141 K808 vehicles) and a third Poland contract at about KRW 7 trillion.

That said, first-half 2026 new orders of around KRW 2.6 trillion left the timing gap between awards and revenue recognition as a sector-wide issue, and large Korean defense shares went through a correction phase after April 2026.

In rail, low-priced domestic backlog still sits in cost of sales while higher-margin overseas projects such as Morocco, Los Angeles Metro and Cairo ramp up; the company has said improvement should begin in the second half of 2026 and become clearer in 2027.

In cycle terms, therefore, the two businesses sit in different places: defense in an execution-and-expansion phase, rail in a phase of working off legacy low-margin work.

Outlook

The company does not publish formal annual guidance, so market estimates need to be read alongside confirmed project schedules.

Kiwoom Securities forecast 2026 revenue of KRW 7,218.5 billion, operating profit of KRW 1,141.5 billion and a 15.8% operating margin in a July 2026 report, while Hyundai Motor Securities projected revenue of KRW 6,760.0 billion and operating profit of KRW 1,150.0 billion in a June 2026 report.

The base for those numbers is an end-2Q26 backlog of KRW 30,404.6 billion, split between KRW 9,819.7 billion at AD&RH and KRW 19,867.0 billion in rail.

The third Poland execution contract is reported to cover 210 units, with 120 likely built in Korea and 90 locally in Poland, over an implementation window of 2026 to 2034 (Financial News and The Guru, July 2026).

Peru signed a framework agreement in December 2025 and is in final contract coordination after the new government takes office; Iraq's desert-climate and mobility trials of the Middle East variant K2ME are targeted for completion in the second half; and Romania is expected to issue a request for proposals around year-end.

The company has also said it is responding to a request for information on Canada's next-generation tank program and has begun adoption talks with northern European and Asian countries.

In rail, revenue recognition is rising from overseas projects including Morocco trains and maintenance and Ho Chi Minh City Metro Line 2.

On capital spending, management said roughly KRW 1.8 trillion of planned investment in defense, aerospace and rail through 2028 will be funded from internal operating cash flow without external borrowing.

Valuation

PER

17.1×

PBR

4.1×

ROE

26.4%

EPS

₩7,400

BPS

₩31,213

Dividend per share

₩600

The valuation debate turns less on the absolute level of profit than on the operating margin decline seen in 2026 and how long the gap in new orders lasts.

Profit itself expanded from the low-margin years of 2022 and 2023 to annual operating profit above KRW 1 trillion in 2025, but the sum of the last four quarters has plateaued near that KRW 1 trillion level, meaning the pace of profit growth has slowed.

The shares trade at a premium to net asset value, which implies the market has been pricing in a meaningful share of pipelines that are not yet contracted, including Iraq, Peru, Romania and a third Poland deal.

Daishin Securities said in a July 2026 report that although the order gap after 2026 has lengthened, the share price sits at the bottom of its valuation band; on price targets, Kiwoom Securities said in July 2026 it maintained KRW 340,000, LS Securities said in June 2026 it maintained KRW 330,000, and Eugene Investment & Securities said in June 2026 it maintained KRW 316,000.

Dividends remain modest relative to earnings, leaving the payout yield below the broader market average, and no additional return measures such as buybacks have been confirmed.

Ultimately the case for the current multiple rests on two still-unresolved variables: the timing of large order signings and whether the defense margin recovers.

PER, EPS, PBR and BPS are all calculated in-house (the same method as Naver and Toss) · Dividend yield = cash dividend per share from DART filings (supplemented by KRX) ÷ current price · As of 2026-09-04

Bull factors

Backlog above KRW 30 trillion plus a multi-trillion pipeline

End-2Q26 backlog hit a record KRW 30,404.6 billion, split between KRW 9,819.7 billion at AD&RH and KRW 19,867.0 billion in rail. At end-2025 the total backlog equated to roughly 5.1 years of revenue.

Separately, pipelines of about KRW 9 trillion in Iraq, KRW 11 trillion in Romania, KRW 3 trillion in Peru and KRW 7 trillion for a third Poland contract are under discussion. A thick backlog reduces the risk that a soft patch in order intake translates immediately into a revenue gap.

High-margin export defense mix and pre-emptive capacity build

The defense division posted a 24.5% operating margin in 2Q26 and carried most of group profit, with exports above 70% of divisional revenue. The company lifted tank capacity about 25%, from 144 to 180 units a year, by reallocating part of the Changwon rolling stock site and workforce.

Analysts argue that as front-loaded costs on the second Poland contract wash through, scale economies have room to work. Added capacity can also serve as a delivery-schedule advantage in tenders from new customer countries.

Advance-payment-backed cash position and self-funded investment

Operating cash flow rose to KRW 904.3 billion in 2025 from KRW 142.5 billion in 2024. Management said the 1Q26 debt-to-equity ratio of 188% falls to 54.7% excluding customer advances, with borrowings of KRW 109.5 billion against cash of KRW 2,681.7 billion.

On that basis it plans to fund roughly KRW 1.8 trillion of investment through 2028 from internal cash flow without external borrowing. While the advance-payment structure of large contracts holds, funding pressure is comparatively light.

Bear factors

Operating margin down four quarters in a row

Quarterly operating margin slid from 18.2% in 2Q25 to 17.1%, 16.5%, 15.4% and 14.5% through 2Q26. Even as revenue rose from KRW 1,417.6 billion to KRW 1,606.1 billion over that span, operating profit fell from KRW 257.6 billion to KRW 232.4 billion, so top-line growth did not convert into profit.

Management cited product mix and a base effect from prior-year contingency costs, while others pointed to a heavier weight of lower-margin domestic volume. First-half operating profit of KRW 456.6 billion was also down 0.8% year on year.

Weak first-half order intake and delayed large contracts

KB Securities said in a July 2026 report that first-half new orders were weak at about KRW 2.6 trillion. Backlog of KRW 29,818.1 billion at end-1Q26 was only KRW 44.6 billion higher than at end-2025.

Peru hinges on the new government and local co-production terms, Iraq on cabinet-level political approval, and Romania on how its budget is structured, pushing signing timelines into the second half or later.

However large the pipeline, later signings widen the uncertainty around the 2027-2028 revenue recognition curve.

Expanding local production in Poland and execution risk

Under the second contract, Changwon-built units are delivered first in 2026-2027, technology transfer follows in 2028, and local Polish assembly begins in 2029. For the third contract, 90 of 210 units are reportedly likely to be built locally, which observers say adds variables outside the prime contractor's control.

Industry estimates put actual throughput near 100 units a year, so simultaneous awards could strain delivery scheduling. Because a large share of contract value is paid on delivery, schedule slippage feeds directly into cash flow.

Risk factors

Geopolitical and policy risk

Key pipelines in Iraq, Peru and Romania depend on counterpart governments' budget approvals and political calendars. Peru is forming a new administration after its election, while Iraq is working through final cabinet approval.

For Romania, how tank funding is treated within the detailed allocation of the European joint loan program has been flagged as a variable. A single political event in any one country can push an award back several quarters.

Execution and cost risk

In rail, low-margin work booked about two years ago combined with extra costs from customer design changes held the 2Q26 operating margin near 1.0%. Management points to improvement from the second half and a clearer step-up in 2027, but early-stage costs on overseas projects are still being absorbed.

In defense, start-up and quality-related costs on the second Poland contract have swung quarterly margins. In long-cycle contracting, if raw material and labor cost increases are not adequately reflected in contract prices, project economics can deteriorate quickly.

Customer concentration and currency risk

Defense backlog and revenue lean heavily on Poland, so the terms and pace of follow-on execution contracts for the remaining 640 units will shape the medium-term earnings path. Export contracts mix dollar-denominated receipts with won-based costs, so exchange rate swings affect non-operating results and margins.

KB Securities said non-operating items produced a KRW 18.2 billion gain in 2Q26 on foreign exchange and financial income as the won weakened, an item that can also work in reverse. Until export diversification is confirmed by signed contracts, concentration risk remains.

What to watch next

September-October 2026
Watch for progress on the third Poland execution contract and how production is split between Korea and local plants. How much of the 210 units is built locally will drive both revenue recognition pace and execution risk.
Late October 2026
In the 3Q26 results, the key questions are whether the defense operating margin recovers from the 24.5% seen in 2Q26 and whether the rail margin moves off the 1% area. Also watch whether the group operating margin rebounds from 14.5%.
Fourth quarter of 2026
This window clusters the Peru definitive contract, results of the Iraq K2ME desert and mobility trials, and any Romanian request for proposals. It is also the point to check how full-year new orders close after just KRW 2.6 trillion in the first half.
January-February 2027
Full-year 2026 results, divisional backlog and the dividend decision will be disclosed. Whether profit grows from the KRW 1,005.6 billion posted in 2025 and whether backlog holds above KRW 30 trillion are the reference points.
First half of 2027
Check actual K2 delivery volumes under the 180-unit annual capacity at Changwon and whether preparations for local assembly in Poland stay on schedule. The pace of executing the roughly KRW 1.8 trillion investment plan through 2028 is also worth monitoring.

Overall view

Hyundai Rotem's earnings power has changed materially in three years, from 2022 revenue of KRW 3,163.3 billion and operating profit of KRW 147.5 billion to 2025 revenue of KRW 5,839.0 billion and operating profit of KRW 1,005.6 billion.

In the first half of 2026 revenue still grew 18.1% to KRW 3,063.5 billion, but operating profit slipped to KRW 456.6 billion, and the quarterly margin fell from 18.2% in 2Q25 to 14.5% in 2Q26.

Profit is concentrated in defense, so the gap between the 24.5% defense margin and the 1.0% rail margin in 2Q26 effectively sets the group margin.

The bullish case rests on a record backlog of KRW 30,404.6 billion, tank capacity raised to 180 units a year, and multi-trillion-won pipelines in Iraq, Peru, Romania and a third Poland contract.

The bearish case rests on weak first-half orders of about KRW 2.6 trillion, four consecutive quarters of margin decline, and delivery and control risk as local production in Poland expands.

The two cases look at the same variables from opposite sides, so the outcome likely depends on when large contracts are signed in the second half and whether defense and rail margins actually recover. This report is for information purposes only and contains no buy or sell opinion or price target for any security.

Sources

Korea Exchange (KRX) — Prices · Market Cap · Volume
FSS electronic disclosure system (DART) — Financial statements · Dividend filings

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Report written 2026-09-05 · Data as of 2026-09-04

This content is AI analysis of market data and web search results, provided for information only. It is not a solicitation or recommendation to invest. Investment decisions and their consequences are the investor's own responsibility. Data may be delayed or contain errors.