Hyundai Rotem turns to railway maintenance to revive profits

Hyundai Rotem, the train-making affiliate of Hyundai Motor Group, rolled out plans Monday to expand its railway system maintenance business, among other efforts, in a bid to revive struggling profits this year.

This development comes after Hyundai Rotem recorded its worst annual performance to date in 2015 -- a net loss of 303.5 billion won ($252.5 million) and operating deficit of 192.9 billion won -- since its acquisition by Hyundai in 2001.

Performing below market expectations, the company logged an operating loss of 211.2 billion won in the October-December period last year, falling further into the red compared to the same period in 2014 and prompting analysts to lower their ratings.

“Hyundai Rotem secured supply deals worth just 1.3 trillion won last year, down 68 percent from the previous year, while related profits decreased from 7.2 trillion won in 2014 to 5.4 trillion won in 2015,” said IBK Securities analyst Lee Sang-hyun.

In an effort to improve its market rating, Hyundai Rotem held a high-level meeting on Monday and set forth key agendas for each of the company’s three business segments: railway systems, plant and machinery manufacturing and defense systems.

Rotem’s top agenda is to tap into the global railway maintenance market, which is valued at some 70 trillion won, of which railway car, high-speed train, and subway segments -- the firm’s main specialties -- account for about 25 trillion won.

So far, the company has secured maintenance projects worth some 300 billion won around the world, including repairing and maintaining railway systems in Ukraine, Turkey, Egypt and Hong Kong.

The Korean railway system builder said it would use its maintenance expertise to secure more contracts in these markets as well as in new countries.

The firm also plans to step up its local maintenance business in Korea, where some 2,000 out of a total of 9,000 local railway vehicles in operation are more than 20 years old and in need of immediate replacements.

Rotem also aims to bring in more profits by supplying high-speed trains to a series of new commercial railway line projects that will open in Korea from 2020 to 2021. It plans to eventually export advanced train technology.

Led by the success of its self-developed high-speed panel transfer system, the industrial firm is eyeing more plant equipment supply deals with local and foreign carmakers including Hyundai, Kia, GM, Ford and Renault.

Rotem, which builds diverse press systems used by carmakers, is particularly looking to expand its partnership with GM, with which it has sealed press system supply deals worth some 300 billion won over the past three years.

In the area of defense systems, Rotem plans to secure more deals to supply its main battle tanks, the K2, as well as wheeled armored vehicles. It will also continue to invest in future combat technologies such as wearable robots, autonomous combat vehicles and explosion detection robots.

“Though Hyundai Rotem faces challenges amid a global economic downturn, we will be able recover our competitiveness through the successful execution of our stated agenda,” a company official said.

In addition to its segment-specific business agenda, Hyundai Rotem has been undertaking heavy restructuring measures, including asset sales, voluntary retirement programs and wage cuts, in a bid to cut costs and improve its finances.

By Sohn Ji-young (jys@heraldcorp.com)