SK Securities has lowered its target price for Hyosung Heavy Industries from 4 million won to 2.5 million won, reflecting the relative weakness in the power equipment sector and market sentiment regarding the speed of revenue conversion from its order backlog. However, the firm believes that the current quarter's poor performance is due to temporary factors such as delays in revenue recognition and one-time costs, and that there will be no significant changes to the demand for power infrastructure or long-term profit outlook.
Na Min-sik, a researcher at SK Securities, projected that third-quarter revenue will reach 1.98 trillion won, a 21.9% increase from the same period last year, while operating profit is expected to rise by 26.1% to 277 billion won. He noted that while revenue is likely to meet consensus expectations, operating profit may fall short.
He explained that delays in revenue recognition are due to transportation disruptions caused by geopolitical uncertainties in the Middle East and adjustments in delivery schedules for high-margin projects in North America. Additionally, one-time costs related to rising planned costs in the construction sector will also be reflected. However, he indicated that the impact of the declining won-dollar exchange rate on profitability is expected to be limited due to currency hedging policies.
Na added that the need to revise profit forecasts for 2027 based solely on this quarter's performance is low. He noted that the order backlog for Quanta Services in the power sector reached $43.79 billion at the end of the second quarter, a 44.6% increase year-on-year. The demand for power infrastructure is accelerating, driven by ongoing projects related to artificial intelligence data centers (AIDC) in addition to existing utility investments.
Regarding the target price reduction, he stated that the relative weakness of the power equipment industry within the AI infrastructure sector continues, and that the market is likely assessing the speed at which the order backlog is converted into revenue.
* This article has been translated by AI.
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