Hanon Systems posts a 4.5% margin even after expensing more R&D costs... “A first sign of an earnings turnaround”

[Financial News] Hanon Systems is sustaining its recovery in profitability through cost cuts and operational efficiencies despite lower revenue. It achieved an operating margin of 4.5% while reducing the share of R&D costs it capitalizes. Growth is expected to accelerate from next year as its data center thermal management and after-sales service (A/S) businesses begin contributing to earnings.
On the 5th, Esther Yim, a researcher at Samsung Securities Co., Ltd., gave Hanon Systems a ‘Buy’ rating and set a target price of 4,500 won. She expects earnings to continue improving as the company stabilizes its financial structure and increases cost efficiency.
Hanon Systems’ third-quarter revenue fell 1.8% year on year to 2.66 trillion won. Operating profit, by contrast, rose 26.6% to 120.6 billion won, with an operating margin of 4.5%. Fewer operating days, a Hyundai Motor Group strike and a decline in exchange rates weighed on revenue, but cost savings offset the impact.
Notably, the R&D capitalization rate fell 14 percentage points, from 38% in the same period last year to 24% this year. The company was seen as having protected profitability despite the increased burden of recognizing R&D costs as current-period expenses.
Cost competitiveness also improved. The cost-of-sales ratio fell 0.9 percentage points year on year to 88.5% in the third quarter. Factors included switching to suppliers in low-cost countries, product design changes and lower logistics costs. The company reduced its use of external warehouses by about half, and parts price cuts totaled about 110 billion won through September this year.
The electrification business is also expanding. Esther Yim said, “As demand has grown, particularly among European premium automakers, xEVs accounted for 33% of sales in the third quarter, up 5 percentage points from a year earlier.” She added, “As net debt declines, interest costs are also on track to fall by about 60 billion won compared with 2025.”
Samsung Securities sees 2027 as a turning point in the company’s business transformation. The A/S business is expected to begin contributing to earnings in 2027, while the data center power-grid thermal management system is expected to do so from the end of 2027.
Esther Yim said, “Hanon Systems is a company, along with Hyundai Mobis, that is expected to see earnings improve in the auto parts sector in 2027.” Diversifying its revenue sources from conventional automotive thermal management into power infrastructure and A/S is seen as a key factor in its medium- to long-term growth.


[email protected] Kim Gyeong-a Reporter