[Click eStock] "The Wind Blows Stronger"... CS Wind Raises Target Price Following 3.9 Trillion KRW Supply Contract

Eugene Investment & Securities Raises Target Price from 100,000 KRW to 120,000 KRW
NH Investment & Securities Also Raises Target Price by 15%

[Asia Economy Reporter Ji Yeon-jin] CS Wind has signed a long-term supply contract worth 3.9 trillion KRW for offshore wind towers with German engineering company Siemens, prompting securities firms to raise their target stock prices one after another.

On the 17th, Eugene Investment & Securities maintained a buy rating on CS Wind and raised the target price from 100,000 KRW to 120,000 KRW. The target price is based on a price-to-earnings ratio (PER) of 31 times for 2024 earnings, when large-scale offshore wind supply sales and the effects of the U.S. Inflation Reduction Act (IRA) are expected to fully materialize. Researcher Han Byung-hwa said, "It has become certain that CS Wind will grow into the world's largest tower company in the offshore wind market, which grows more than three times faster than onshore wind, raising the valuation premium," adding, "Overseas wind companies are expected to reduce losses or start turning around next year, with an average PER of about 64.6 times."

CS Wind announced that it will supply wind power equipment worth a total of 3.9 trillion KRW from 2024 to 2030. This is the largest scale ever in global equipment supply contracts. Approximately 500 billion to 600 billion KRW worth of offshore wind towers will be supplied annually from CS Wind’s factories in Portugal and Vietnam to Europe, the U.S., and Asia over seven years. The Portugal plant will expand its current annual production capacity from 40,000 tons to 140,000 tons to fulfill this contract. The Vietnam plant is constructing a new dedicated offshore wind factory, with the recent completion of a land purchase contract.

Siemens is an absolute leader, holding a 70% cumulative global market share in offshore wind. The largest volume of this contract will be supplied to Europe, anticipating a surge in offshore wind installations there starting in 2025. Researcher Han said, "Offshore wind installations in the U.S. will begin in earnest next year, but local companies are minimal, so the IRA only requires a 20% domestic production ratio for projects starting construction by 2025," adding, "This level only requires construction work, so European companies are likely to supply offshore wind towers on the U.S. East Coast until the late 2020s, effectively allowing CS Wind to preempt the offshore wind tower markets in Europe and the U.S."

NH Investment & Securities also announced a buy rating and raised the target price by 15% to 90,000 KRW on the same day, expecting next year's earnings per share (EPS) to increase by about 16%. Researcher Jung Yeon-seung of NH Investment & Securities said, "Visibility of the U.S. Inflation Reduction Act implementation has increased, and subsidies related to wind turbine manufacturing in the U.S. (assuming 28 billion KRW in non-operating income annually) have been reflected in the 2024 earnings," adding, "The maximum possible subsidy amount is 120 million USD."

This follows the Democratic Party's unexpected confirmation as the majority in the U.S. Senate in the midterm elections, reducing uncertainties related to the Inflation Reduction Act (IRA). CS Wind acquired Vestas's U.S. tower subsidiary last year, and the subsidy specified in the IRA for tower production in the U.S. is 3 cents per watt. Considering a 100% capacity factor, this means a maximum annual subsidy receipt of 1.2 trillion KRW is possible.

Kiwoom Securities researcher Lee Jong-hyung said, "Considering expansion and legislative momentum, as well as a favorable market and policy environment, a mid- to long-term valuation premium is justified," raising the target price to 91,000 KRW and maintaining a buy rating.

However, Meritz Securities researcher Moon Kyung-won advised, "While the contract size itself is large and the seven-year long contract period highlights the supplier-dominant nature of the wind tower market, short-term valuation burdens should be kept in mind." Currently, CS Wind’s PER for next year is 31.1 times, surpassing Vestas’s 29.7 times, and this year’s orders are expected to slightly miss guidance. Researcher Moon added, "It is necessary to approach with a mid- to long-term perspective, looking beyond short-term trading gains after the second half of 2023."