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A new chapter of growth begins

2Q25 OP to meet consensus

For 2Q25, we expect Hyundai Rotem to report in-line results, with revenue of W1.29tr (+18% YoY; 6% below the consensus), operating profit of W237.8bn (+238% YoY; 2.5% above the consensus), and an OP margin of 18.4%. We estimate the defense solutions division’s revenue at W720.3bn (+28% YoY), operating profit at W225.7bn (+107% YoY; OP margin of 31.3%), and export margin at 40.9%, The segment’s strong performance was once again supported by: 1) a higher share of exports; and 2) operating leverage effects from repeat production.

Follow-up Poland deal reflected in earnings; positive ripple effects expected

On Jul. 2, Poland’s Ministry of National Defense unveiled the details of the follow-up K2 tank contract. The scale of the deal is officially confirmed at US$6.7bn (W9.1tr), in line with market expectations, and involves a total of 261 units―180 K2 tanks (117 K2 gap fillers and 63 K2PLs) and 81 K2-based variants. The official signing is scheduled to take place after Korea appoints its new defense minister, but all in all, we believe uncertainty over follow-up orders has been largely resolved. As such, we have fully reflected the deal in our earnings estimates.

While the follow-up K2 contract is meaningful in and of itself due to its sheer size (the largest export deal ever for the Korean defense industry), its future impact on order wins could prove to be even more significant. Indeed, the likelihood of orders for 640 additional K2PL tanks has increased, and opportunities involving Romania (250 units) and Slovakia (104 units) are likely to gain momentum. Furthermore, the K2PL technology transfer/local production deal should also serve as a useful benchmark in dealings with Saudi Arabia. Going forward, the company plans to gradually expand its K2 production capacity by two- to fourfold, further increasing revenue. HD Hyundai Infracore has already begun construction of a new plant to double its K2 engine production capacity.

Retain Buy; raise TP by 76.5% to W300,000

We retain our Buy rating and raise our target price by 76.5% to W300,000 (from W170,000). We lifted our 2026F and 2027F operating profit estimates by 19.6% and 69.3%, respectively, to fully reflect the follow-up K2 contract with Poland. We changed our valuation base to 2026?27F, when K2PL revenue will be recognized, and removed the 20% discount previously applied to the defense solutions unit (factoring in backlog expansion and a higher likelihood of additional K2 exports). Based on our 2026?27F avg. EPS estimate of W14,746, our target price implies a P/E of 20x.