Hyundai WIA is reviewing a plan to hand over its defense industry institutional sector to Hyundai Rotem to focus on future businesses such as robots. There is widespread concern among shareholders and employees that if it spins off defense, considered a "cash cow," results will deteriorate, suggesting considerable turbulence before a sale is finalized.
According to industry sources on the 17th, Hyundai WIA is pushing a business restructuring that would sell to Hyundai Rotem the business producing large-caliber artillery, including the barrel of the K9 self-propelled howitzer and the main gun of the K2 tank. Less than a year after it separated and sold the machine tool business in July last year, it is now moving to put even the defense business on the block.
Hyundai WIA says it has not yet decided whether to sell, but the industry expects the two sides to wrap up the deal within this year.
Because defense is a high-growth business for Hyundai WIA, if the sale goes through, overall results are likely to worsen. In the first quarter of this year, combined revenue from the defense institutional sector and mobility solutions including robots was 185.4 billion won, up 15.4% from a year earlier.
Although separate revenue for defense was not disclosed, Hyundai WIA said its growth rate was 22.8%, far outpacing mobility solutions (4.9%). During the same period, revenue from automotive parts, Hyundai WIA's largest business, rose only 4.9%.
Defense also has far superior profitability to other businesses. In the first quarter of this year, combined operating profit for defense and mobility solutions surged 47.8% from a year earlier, with an operating margin of 10.8%. By contrast, the automotive parts business saw operating profit fall 9.7%, with an operating margin of 1.6%.
An industry official said, "Hyundai WIA's automotive parts business mostly supplies at costs set by Hyundai Motor, making it hard to improve profitability, but defense involves sales outside the group, allowing it to set its own profits."
Financial markets expect Hyundai WIA's results to inevitably worsen if it sells defense. Lee Byung-geun, an analyst at LS Securities, said, "The revenue gap from excluding the defense institutional sector can be offset by thermal management systems ordered by group affiliates in the future, but profitability is expected to be lower than the defense institutional sector," adding, "Following the sale of the defense institutional sector, results may show a weak trend."
Opposition is also emerging among shareholders, centered on online communities. A Hyundai WIA shareholder who requested anonymity said, "Defense sales will continue to grow due to the U.S.-Iran war, and it is a highly profitable business," adding, "I don't understand the review of a sale."
Internal pushback also appears to be taking shape. Kim Tae-heon, head of the Hyundai WIA white-collar union chapter, said, "The problem is that there has been no communication with employees even as a highly profitable business is being sold," adding, "If the sale becomes a fait accompli, the union will have to respond." The production workers' union at Hyundai WIA also plans to draw up future measures after watching whether the sale is confirmed.
Still, there is an outlook that in the long term, shifting the portfolio to future businesses could increase corporate value. Yoo Ji-woong, an analyst at Daol Investment & Securities, said, "The thermal management business aims to expand from about 100 billion won last year to 1 trillion won by 2030, and the industrial robot business plans to grow from about 100 billion won annually to around 400 billion won by 2028," adding, "Selling defense is not a simple disposal of a noncore asset but a process of reallocating capital to mid- to long-term growth pillars."