[Click eStock] "LS ELECTRIC, Earnings Recovery Expected After Q2"

Hana Financial Investment "Maintains LS ELECTRIC Target Price at 77,000 Won"
Expected Recovery from Q2 with Infrastructure and Renewable Energy Orders

[Asia Economy Reporter Gong Byung-sun] LS ELECTRIC's first-quarter performance this year fell short of market expectations (consensus). However, the renewable energy sector is expected to recover in line with LS ELECTRIC's infrastructure performance and renewable energy orders, depending on the future investment trends in Korea Electric Power Corporation (KEPCO) facilities and major battery investments. On the 30th, Hana Financial Investment maintained a target price of 77,000 KRW for LS ELECTRIC and a 'Buy' investment rating.

LS ELECTRIC's first-quarter performance this year fell short of the consensus. First-quarter sales were 598.4 billion KRW, down 7.3% compared to the same period last year. Despite a strong exchange rate, overseas subsidiaries' performance remained solid, but domestic power infrastructure showed sluggish growth. Operating profit was 22.4 billion KRW, down 42.3% year-on-year. The main cause of the poor performance was the turnaround to a loss due to decreased sales. The resurgence of COVID-19 led to reduced and delayed investments, making the recovery of orders from KEPCO crucial going forward.

Power equipment saw growth in both domestic and overseas markets, but margins declined significantly due to the strong exchange rate and rising raw material prices. Automation profits improved due to increased sales in large corporations and unit machinery markets. Future expansion is expected not only in distribution but also in new markets such as semiconductors and automobiles. The renewable energy sector saw a marked decrease in scale because major domestic solar power and smart grid projects have ended. However, exports of electric vehicle parts are steadily increasing, and with expanded investment in the domestic renewable energy market, order opportunities are also expected to arise.

Recovery is expected from the second quarter through infrastructure and renewable energy orders. The power equipment sector is anticipated to experience gradual growth as demand in the European renewable energy market steadily increases. Infrastructure performance may recover following recent increases in overseas secondary battery facility investments (CAPEX) and KEPCO facility investments. Yoo Jae-sun, a researcher at Hana Financial Investment, said, "KEPCO's public Energy Storage System (ESS) project is scheduled to proceed with the first phase this year," adding, "Although the domestic ESS market has somewhat contracted, expectations for Engineering, Procurement, and Construction (EPC) orders may be highlighted again."