Four major South Korean power equipment companies are expected to report significant improvements in their third-quarter performance this year. Driven by the expansion of artificial intelligence (AI) data centers and demand for North American power grid replacements, their combined operating profit is projected to increase by approximately 45% compared to the same period last year. However, despite these strong results, market expectations for future growth potential appear to be waning.
According to FnGuide on October 20, the combined operating profit forecast for Hyosung Heavy Industries, HD Hyundai Electric, LS Electric, and Iljin Electric for the third quarter of this year is estimated at 873.4 billion won, marking a 44.8% increase year-on-year.
Individually, Hyosung Heavy Industries is expected to see its operating profit rise by 41.2% to 310.3 billion won. HD Hyundai Electric is projected to increase by 24.0% to 306.5 billion won, while LS Electric anticipates a 92.4% rise to 193.9 billion won. Iljin Electric is also expected to report a 77.6% increase, reaching 62.7 billion won.
The improvement in performance is attributed to the growing demand for power equipment, particularly in the North American market. The construction of AI data centers and the replacement of aging transmission and distribution networks have led to a steady increase in demand for high-voltage transformers, circuit breakers, and switchgear. Analysts note that previously secured orders at high prices are now being reflected in actual sales, contributing to improved profitability.
Despite the growth in performance, market evaluations of the future growth potential of power equipment companies have somewhat diminished. Securities firms have been lowering their target prices for these companies. Previously, power equipment firms were recognized for their high growth potential due to rising sales prices stemming from global supply shortages and an increased share of high-margin products. However, recent downward adjustments in performance forecasts for some companies have raised doubts about whether they can sustain the steep profit growth previously anticipated.
In the medium to long term, the sustainability of profitability improvements due to supply shortages will also be a key concern. As domestic and international power equipment companies expand their production facilities to meet rising demand, there is a possibility that increased supply could impact product prices and profitability.
Power equipment typically requires significant time for production, transportation, installation, and inspection after orders are secured. If customer project schedules are delayed, the recognition of sales from secured orders may also be postponed. Additionally, a decline in the won-dollar exchange rate could reduce the won-denominated sales and profits of exported products, potentially affecting the anticipated extent of performance improvements.
However, many industry observers caution against concluding that current concerns indicate a broad slowdown in the power equipment sector. Demand for power equipment driven by North American grid replacements and AI data center investments remains robust, and domestic companies have secured a healthy backlog of orders for several years. While short-term delivery delays may postpone the recognition of sales, the underlying demand has not diminished.
An industry insider stated, "Although the prolonged conflict in the Middle East has delayed the recognition of sales for some projects, it is premature to conclude that growth has slowed when considering overall performance through the fourth quarter. With a backlog of orders secured for three to four years, it is difficult to assert that temporary delays in sales recognition or exchange rate declines have derailed the overall growth trend in the market."
* This article has been translated by AI.
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