SK Securities said on the 10th that Hyosung Heavy Industries is seeing simultaneous growth in scale from rising demand for power equipment and profit growth from improved profitability in the heavy industries institutional sector. It maintained its Buy rating and raised the target price to 3.6 million won from 3 million won. The previous trading day's closing price of Hyosung Heavy Industries was 2,882,000 won.
Na Min-sik, an analyst at SK Securities, said, "In February this year, the company won an order for 765kV (kilovolt) power equipment worth about 780 billion won, and with rising power demand in North America, construction of 765kV transmission networks is anticipated," adding, "Because 765kV has high barriers to entry, profitability is estimated to be high."
The U.S. tariff on transformers is expected to be eased. U.S. President Donald Trump issued a new proclamation in Apr. this year on derivative products of steel and aluminum. Previously, a reciprocal tariff of 10% plus the steel tariff applied for a total of around 25%, but the revised plan appears likely to ease it to below 25%.
Capital expenditure (CAPEX) is expected to increase to 667.2 billion won this year. Funding will be covered within the range of free cash flow (FCF), and it is planned to be invested in transmission power equipment and STATCOM (static synchronous compensator∙reactive power compensation device), among other new growth pillars.
For the first quarter of this year, Hyosung Heavy Industries' revenue is projected at 1.4058 trillion won and operating profit at 169.4 billion won. Compared with the same period a year earlier, revenue is up 30.6% and operating profit is up 65.5%.
Na said, "In the short term, due to fewer working days in the first quarter and a temporary contraction in the share of North American revenue, the operating margin of the heavy industries institutional sector will slightly soften compared with the fourth quarter of last year," while adding, "Concerns about shipment delays to the Middle East due to the Iran war are limited, and the impact on revenue is judged to be minimal."
Hyosung Heavy Industries' operating profit is expected to reach 1.0252 trillion won this year and 1.6779 trillion won next year, indicating double-digit profit growth for a second straight year.
Na added, "Expanding the 765kV lineup will lead to greater market share in the U.S. extra-high-voltage transformer market," and "We are focusing on STATCOM, which contributes to grid stabilization, as a new growth driver."