Recently, power equipment stocks plunged 40% from their peaks, stoking concerns about a "peak-out." Still, the securities industry sees the recent pullback as a short-term shock from fund rotation within artificial intelligence (AI) beneficiaries. In particular, as the growth axis spreads from "ultra-high-voltage transformers" to "distribution equipment," analysts say the power sector remains in a solid growth phase.
According to the Korea Exchange (KRX) on the 27th, Hyosung Heavy Industries closed at 2,681,000 won on the 24th. That is down 44.8% from the record high of 4,865,000 won set in May. On the same day, HD Hyundai Electric also ended at 810,000 won, down 44.0% from its peak, and LS Electric closed at 202,000 won, down 39.7%.
Power equipment has been cited as a prime beneficiary of expanded AI data center investment. As AI spreads and power consumption surges, investment has broadened across power infrastructure, including ultra-high-voltage transformers. Replacement of aging power grids in North America has coincided with rising demand for transformers and transmission and distribution facilities. In particular, as demand surged in a market with limited suppliers, product prices were raised and profitability improved significantly.
However, the market mood shifted sharply starting in May. After the launch of single-stock leveraged ETFs for Samsung Electronics and SK hynix, AI investment funds moved to large-cap chip stocks, triggering a wave of profit-taking in power equipment stocks. On top of that, concerns spread that the cycle may have passed its peak as the possibility of a slowdown in big tech's AI capital expenditures (CAPEX) was raised.
Still, the securities industry views the recent share-price correction as a temporary flow shift rather than a downturn in fundamentals.
Son Hyun-jung, an analyst at Yuanta Securities Korea, said in a report at the time, "After the launch of single-stock leveraged ETFs, funds within the AI theme moved quickly to large-cap semiconductor stocks," noting, "The recent correction is not an industry peak-out but the result of profit-taking pressure after a sharp first-half rally coupled with fund rotation within the AI theme."
Even so, the securities industry sees the power equipment cycle as still in a growth phase as U.S. AI data center construction continues. In particular, analysts say demand that initially centered on ultra-high-voltage transformers has recently expanded to distribution equipment, broadening the base of the power equipment supercycle.
Seong Jong-hwa, an analyst at LS Securities, analyzed, "In power equipment, ultra-high-voltage transmission products first entered a supercycle in 2021–2022, and since the second half of last year, medium- and low-voltage distribution products have also entered a full-fledged boom as hyperscalers expanded AI data center investment."
This shift was also evident in LS Electric's results announced the day before. Second-quarter revenue at LS Electric rose 32.2% on-year to 1.577 trillion won, and operating profit jumped 64.3% to 178.5 billion won, both beating market expectations. The surge was driven by sales of power distribution boards and medium- and low-voltage transformers bound for U.S. AI data centers.
New orders were also raised sharply. New orders in the second quarter surged 243% on-year to 2.0835 trillion won, a quarterly record. In the first half alone, the company achieved 80% of this year's forecast of 4 trillion won. The company sharply raised its full-year new orders guidance from around 4 trillion won to 6 trillion–6.5 trillion won. The securities industry raised the target price for LS Electric(010120) to 250,000–320,000 won.
Expectations are growing that other power equipment corporations will also post strong second-quarter results. HD Hyundai Electric(267260) is accelerating its push into the distribution market while demand remains solid for its core product, ultra-high-voltage transformers bound for the United States. HD Hyundai Electric early this month raised its full-year orders guidance from $4.2 billion (about 6.2 trillion won) to $5.2 billion (about 7.7 trillion won). Ahead of HD Hyundai Electric's second-quarter earnings release, the securities industry is setting target prices at 1.1 million–1.53 million won.
Hyosung Heavy Industries(298040) is expanding its market beyond ultra-high-voltage transformers to ultra-high-voltage gas circuit breakers (GCB). Recently, Hyosung Heavy Industries set up a joint venture (JV) with Quanta Services to produce 75.2 kV–800 kV GCBs starting in October. Yuanta Securities Korea expects Hyosung Heavy Industries to likely raise its new orders guidance at the time of its second-quarter earnings announcement. The securities industry is assigning a target price of 4.4 million–5.3 million won for Hyosung Heavy Industries.
Kim Tae-hyung, an analyst at Mirae Asset Securities, said, "Transformers and distribution equipment are a supplier's market, making average selling price (ASP) hikes relatively easy," adding, "As power demand increases, centered on U.S. data centers, demand is expanding not only for transformers but also for distribution equipment."