[Into the Stocks] CS Wind Soars Riding the Global Green Policy Wave

Expansion of Eco-Friendly Policy Momentum... Benefits for Global No.1 Company
Remaining Resources... Focus on Securing Mid- to Long-Term Growth Drivers
Clear Improvement in Performance... Stable Outlook Ahead

[Asia Economy Reporter Ji-hwan Park] The world's number one wind tower manufacturer CS Wind is expected to greatly benefit from the global expansion policies for wind power generation. Amid steady performance improvements driven by governments' expanding eco-friendly policies worldwide, the possibility of further performance level-up through aggressive investments has also increased. The company is establishing itself as a solid 'performance stock' with growth potential as an eco-friendly stock.

Wind Market Entering Full Expansion Phase...Global Focus on Eco-Friendliness

According to the International Energy Agency (IEA) on the 17th, the compound annual growth rate (CAGR) of wind power installation capacity is expected to reach 17% by 2025. Growth is projected to continue at 12% annually until 2030. COVID-19 has prompted governments in the U.S., China, Europe, and South Korea to shift their energy policies toward eco-friendly energy. Especially, as major countries raise their carbon emission reduction targets, plans to expand renewable energy installations such as wind power are being significantly increased compared to previous plans.

The wind market is currently experiencing added momentum from global policies. The European Union (EU) has raised its carbon emission reduction target from 40% to 55% by 2030 compared to 1990 levels. Germany plans to further increase its target to 65%, which is expected to strengthen the overall EU goal once again. The U.S. has expanded its 2030 target from 26-28% to 50-52%. Japan raised its 2030 target from 26% to 46% compared to 2013. South Korea also plans to raise its 2030 reduction target from 24.4% compared to 2017 within this year.

Analysts say it is only a matter of time before countries that have raised carbon emission reduction targets announce expansions in renewable energy installations such as wind power. Policy drives are expected to focus especially on offshore wind power, where large-scale complexes can be installed in a short period.

Effective Expansion to Secure Market Leadership

CS Wind has focused on expanding its scale in line with the growth of the wind market. With production bases in Vietnam, Malaysia, China, Taiwan, and Turkey, and a strategy to enter North America, Europe, and Asia, it has established itself as the world's leading wind power tower manufacturer.

In July 2015, it acquired Indonesia's PT Daekyung Indah Heavy Industry for 13.3 billion KRW, and in 2017, it purchased Malaysia's Eco Tower. These two acquisitions secured a foothold for CS Wind's entry into the Southeast Asian market.

Earlier this month, CS Wind announced plans to acquire 100% of the shares of Vestas' U.S. factory, a Danish wind turbine company. The tower factory in Pueblo, Colorado, U.S., spans about 1 million pyeong (approximately 3.3 million square meters), making it the largest existing global tower factory. The transaction size reaches 150 million USD (approximately 166.5 billion KRW). This acquisition is regarded as a landmark deal for CS Wind in many respects. The U.S. is one of the fastest-growing regions for wind power, with rapid expansion expected after 2023. According to the Global Wind Energy Council (GWEC), although there will be no new offshore wind power installations in the U.S. this year and next, new installations are expected to start at 283 MW in 2023, then 2,878 MW in 2024, 4,184 MW in 2025, and 3,246 MW in 2026.

The Biden administration in the U.S. has imposed anti-dumping and countervailing duties on wind towers imported from almost all countries. This deal alleviates concerns about strengthened protectionism on imported tower products in the U.S. Additionally, it contributes to local job creation and lays the foundation for sustainable growth. Byung-hwa Han, a researcher at Eugene Investment & Securities, said, "With the acquisition of Vestas' U.S. factory, CS Wind can grow rapidly under the protection of the U.S. government," adding, "Theoretically, if CS Wind's U.S. factory achieves a market share of over 40%, its tower sales could reach 1 trillion KRW." Additional investment plans, such as expanding the offshore wind factory on the U.S. East Coast and acquiring local European offshore wind companies, are expected to materialize in the third quarter.

Unwavering Performance...Strong Stock Appeal Without Burden

CS Wind recorded strong results in the first quarter of this year, with sales of 242.1 billion KRW and operating profit of 31.6 billion KRW, up 34% and 94% respectively from the previous year. Analysts expect profitability to improve as production efficiency increases each quarter. The securities industry anticipates that CS Wind will open the era of 1 trillion KRW in sales and 100 billion KRW in operating profit for the first time this year.

According to financial information provider FnGuide, CS Wind's annual forecast for this year estimates sales of 1.1893 trillion KRW, a 22.72% increase from the previous year, and operating profit of 130.2 billion KRW, up 33.40%. As of the end of April, the company has already achieved nearly 50% of its annual order target of 850 million USD (approximately 958.7 billion KRW).

The stock price, free from burdens, is also a strength. CS Wind closed at 79,200 KRW as of the previous day. The stock price fell more than 25% after reaching an all-time high of 108,000 KRW on February 8. However, compared to the low of 7,710 KRW in March last year, it has already increased more than tenfold. Kyung-won Moon, a researcher at Meritz Securities, said, "The current stock price corresponds to a price-earnings ratio (PER) in the low 20s based on 2022, which is attractive compared to last year's trading at over 30 times." He added that this is a time when investment appeal is higher than ever in terms of performance, momentum, and valuation.

Risks from Interest Rate and Raw Material Price Increases Are Key

Renewable energy-related stocks, including wind power, have faced some short-term performance concerns this year due to rising raw material prices, increased transportation costs, and construction delays of new power plants caused by the COVID-19 impact, which has somewhat suppressed stock prices. Additionally, the relative underperformance of growth stocks, including renewable energy sectors, due to rising interest rates has also affected the market. Growth stocks, which focus on future value, tend to experience stock price weakness during periods of rising interest rates because the discount rate applied to expected cash flows increases. Yeon-seung Jung, a researcher at NH Investment & Securities, explained, "In the second half of the year, as the COVID-19 situation eases mainly in developed countries, the installation scale of solar and wind power facilities is expected to increase. However, the possibility of margin erosion due to rising transportation costs and raw material prices still exists."

However, in the case of CS Wind, it is analyzed that the impact of rising raw material prices is relatively limited compared to other renewable energy-related stocks. This is because the business structure allows some of the raw material price increases to be passed on to customers.