Hyundai Rotem shares fall about 11% after weak Q3 profit and brokerage target cuts

Shares of Hyundai Rotem fell more than 10% in early trading on 20 October after the company's third-quarter results missed market expectations and brokerages lowered their target prices. Korea Economic Daily reported the stock down 11.12% at 89,500 won at 09:20, and Chosun Ilbo had it down 10.92% at 89,700 won at 09:22. Yonhap reported a fall of 10.72% to 89,900 won at 09:24, with an intraday drop of as much as 12.02% to 88,600 won. Newsis reported an 11.32% fall to 89,300 won at 09:47, noting the stock had opened 0.99% higher before turning lower. [ 1 , 2 , 3 , 4 ]

Hyundai Rotem disclosed the results the previous day, according to Yonhap and Newsis. Third-quarter revenue was 1.6207 trillion won, up 0.1% from a year earlier, and operating profit was 247.1 billion won, down 11.1%. Yonhap put the market expectation at 273.7 billion won, while Newsis cited a consensus of 276.0 billion won, which it said the result missed by 10.5%. Korea Economic Daily said a stronger won slowed revenue growth. It also reported that defense-division operating margin rose to 28.1% from 24.5% in the previous quarter as deliveries under the second Poland K2 tank contract began. [ 1 , 3 , 4 ]

Korea Economic Daily said seven brokerages lowered their target prices and all kept a 'buy' opinion. Shinhan Investment cut its target from 230,000 won to 150,000 won, a reduction of 34.8%. SK Securities cut its target from 310,000 won to 180,000 won; Chosun Ilbo put the cut at 42%, and Newsis at more than 40%. Yonhap reported Kiwoom Securities going from 240,000 won to 195,000 won and iM Securities from 280,000 won to 190,000 won. The outlets differ on Samsung Securities, which Korea Economic Daily put at 166,000 won and Yonhap at 156,000 won, down from 250,000 won. [ 1 , 2 , 3 , 4 ]

The outlets quoted analysts on the order outlook. Han Seung-han (한승한) of SK Securities said the cut reflected order-pipeline uncertainty and weaker profit estimates from next year's product mix, and that a cautious approach was needed until order momentum for the Iraq and Romania K2 projects becomes visible. He said Peru, where a parliamentary approval step is due in November, was likely to sign early next year, and Romania could see orders in the first quarter after a new government takes office. Lee Han-gyeol (이한결) of Kiwoom Securities said many orders expected this year could slip to next year, and that Iraq talks were stalled by the prolonged Middle East war. [ 1 , 2 , 3 , 4 ]

Korea Economic Daily said the third Poland contract aims to open negotiations within the year, with the scope of technology transfer and local production still under discussion. It said the Peru tank project was delayed by a change of government and budget problems. Lee Dong-heon (이동헌) of Shinhan Investment said Poland's second-phase production had stabilized margins but that further orders were key. [ 1 ]

Brokerages also cut profit forecasts. Shinhan Investment lowered its operating profit forecast for next year from 1.287 trillion won to 979.2 billion won, down 23.9%, and Kiwoom cut its forecast by 20.4%, reflecting delayed new orders and a larger domestic production share. Baek Ju-ho (백주호) of Hyundai Motor Securities said next year's revenue should be similar to this year's, but a lower export share and more low-margin domestic business could reduce operating profit. [ 1 , 3 ]