CS Wind, Investment Plans Utilizing Capital Increase Funds Draw Attention

4.674 Trillion KRW Capital Increase Executed... Investment to Expand Production Capacity
Continuous Growth of Offshore Wind Power... Caution on Energy Policy Changes

[Asia Economy Reporter Lee Seon-ae] Attention should be paid to the investment plans utilizing the capital increase funds of CS Wind, a manufacturer of wind turbine towers, according to investment advice.

On the 28th, KB Securities reported that CS Wind carried out a paid-in capital increase worth 467.4 billion KRW in February. The company plans to use more than 60% of the secured funds to secure additional production capacity in the U.S. market. Since the inauguration of the Joe Biden administration, policy support such as tax benefit extensions and renewable energy promotion plans has been concretized. Accordingly, expectations for the expansion of offshore and onshore wind power projects are increasing.

KB Securities stated, "We expect concrete investments to expand production facilities of the U.S. corporation and to respond to the substructure market," adding, "If production capacity expansion through M&A is achieved under these circumstances, early contributions to sales and profits are expected."

Renewable energy is expected to continue high growth. According to the forecast by global energy company BP, the share of renewable energy, which was 11% in 2018, is expected to increase to 29% by 2040. This increase in the share of renewable energy is expected to be led by solar power and wind power. The share of wind power, which accounted for 5% of total power generation capacity in 2018, is projected to rise to 13% by 2040.

Attention is also needed for the growth of the offshore wind power market. High growth in the offshore wind power market centered in Europe is expected. The EU Commission announced in November last year that it plans to expand Europe's offshore wind power capacity from the current 12GW level to 60GW by 2030. Accordingly, business opportunities in large-diameter towers and substructures for offshore wind turbines are expected to expand.

CS Wind recorded sales of 969.1 billion KRW and operating profit of 97.6 billion KRW in 2020. Sales and operating profit surged by 21.2% and 62.3% respectively compared to the previous year. This is attributed to increased tower demand from global wind turbine companies such as SGRE (Siemens), GE, and Vestas, the effect of expanding overseas production subsidiaries, and yield stabilization. With new orders in 2020 reaching 830 million USD, significantly exceeding the initial target of 700 million USD, further performance growth is expected this year as well.

However, risks due to policy changes in various countries should be noted. The wind power industry is a representative order-based industry. Wind power complexes are developed according to government permits, and CS Wind signs supply contracts with wind turbine manufacturers to deliver products. The business environment can vary depending on the political environment of each country, and performance may decline due to reduced orders during economic downturns.

In fact, in 2018, net profit decreased due to impairment losses on the value of the Canadian subsidiary following the suspension of wind power support policies in Canada. Changes in environmental policies such as subsidy payments in each country may lead to fluctuations in performance and stock prices. Attention is also needed to exchange rate fluctuations and raw material price volatility. 80-85% of CS Wind's total sales are denominated in U.S. dollars. KB Securities analyzed, "Due to production facilities distributed worldwide, the proportion of U.S. dollars in costs is also high, naturally hedging some risks, but a sharp decline in exchange rates could negatively impact performance."