[This Week's Industry Insight] Wind Power Companies Avoid High-Interest Headwinds, Ride Earnings Tailwind

World's No.1 Wind Tower Manufacturer 'CS Wind'
Stock Price and Business Recovery as Interest Rate Concerns Ease
Blatt Acquired Last Year Expected to Turn Profitable Early

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CS Wind, which faced headwinds last year due to high interest rates, is drawing attention as it may catch a tailwind this year amid growing expectations of interest rate cuts. The industry conditions are improving, and the subsidiary's performance is recovering faster than expected, raising expectations for stable growth this year.

According to financial information provider FnGuide on the 17th, securities firms have recently raised their target prices for CS Wind one after another. NH Investment & Securities raised its target price from 70,000 KRW to 88,000 KRW, Ebest Investment & Securities raised it from 68,000 KRW to 81,000 KRW, Kyobo Securities raised it from 71,000 KRW to 81,000 KRW, DS Investment & Securities raised it from 74,000 KRW to 80,000 KRW, and Sangsangin Securities raised it from 71,000 KRW to 83,000 KRW. The upward revision of target prices was driven by the recovery in wind power demand and the profitability improvement of Bladt, acquired last year.

Researcher Jeong Yeon-seung of NH Investment & Securities explained, "The target price increase reflects external growth due to the recovery in onshore wind power demand and the profitability improvement of Bladt, acquired last year." He added, "The operating profit estimate for 2025, the base year for the target price calculation, was raised by 7%, and the target price-to-earnings ratio (PER) was increased by 17% to 17.5 times, reflecting the stock price rise of wind turbine companies." Researcher Kim Kwang-sik of Sangsangin Securities said, "The performance of Bladt, which was a concern, is expected to improve early, and the improvement in the industry due to interest rate cuts is becoming visible. The normalization of the U.S. subsidiary is expected due to increased orders from Vestas."

Preparing for Takeoff as Interest Rate Concerns That Pressured Stock Prices Ease

CS Wind, established in 2006, is the world's number one manufacturer of wind towers. It supplies wind towers to major global wind turbine companies such as General Electric (GE), Vestas, and Siemens Gamesa. It has production facilities in China, Vietnam, Malaysia, and the United Kingdom, and in June 2021, it acquired a U.S. production plant from Danish wind turbine manufacturer Vestas.

CS Wind, which sustained a rising stock price trend based on improved performance in the first half of last year, experienced a continuous decline in the second half due to growing concerns over high interest rates. The stock price, which approached 90,000 KRW in June, fell to the 40,000 KRW range in November, halving its value. Since the end of last year, expectations of interest rate cuts have increased, and the stock price has recovered, currently up 47% from last year's low point.

Researcher Ahn Joo-won of DS Investment & Securities said, "The stock prices of wind power companies, which were suppressed by expectations of U.S. interest rate cuts, have rebounded, and CS Wind, which fell the most, has risen the most from its low point." He added, "The interest rate events that had the greatest impact on the stock price decline have stabilized, and going forward, new orders and performance of each company will be key points for stock price increases."

With interest rates stabilizing, the renewable energy business, including wind power, is expected to improve early. Last year, the profitability of wind power projects declined due to higher-than-expected interest rates, causing delays or cancellations. In response, the U.S. and Europe expanded policy support by simplifying bidding procedures or raising bid prices considering inflation.

Researcher Han Byung-hwa of Eugene Investment & Securities said, "Policy rates are expected to be cut from the second half of this year, and interest rates have shown signs of peaking since the fourth quarter of last year." He added, "With expanded support and lower interest rates, the renewable energy business, including wind power, is expected to improve early. This is a time when CS Wind, the global number one wind tower company that has also entered the offshore wind substructure business, is regaining investment attractiveness."

Bladt's Performance Improvement + Wind Power Demand Recovery "Expecting Performance Growth This Year"

A significant increase in performance is expected this year. The performance of Bladt, an offshore wind substructure manufacturer acquired last year, is improving rapidly, and wind power demand in the U.S. and other regions is also recovering.

According to FnGuide, the consensus operating profit (average securities firm forecast) for CS Wind this year is 228.4 billion KRW. This is a significant increase compared to last year's consensus operating profit of 145.9 billion KRW. Sales are expected to reach 2.5488 trillion KRW, also a significant increase from last year's consensus of 1.612 trillion KRW.

One researcher explained, "CS Wind's sales and operating profit this year are estimated at 2.69 trillion KRW and 242.8 billion KRW, respectively, representing a 72% and 68% surge compared to the previous year." He added, "The main reasons for the performance improvement are increased sales of Vestas towers by the U.S. subsidiary, price increases by Bladt, and the full-scale sales of offshore wind towers to Siemens by the Vietnam and Portugal subsidiaries."

In particular, the rapid improvement in Bladt's performance has alleviated market concerns. CS Wind acquired Danish offshore wind tower substructure company Bladt in July last year and entered the substructure manufacturing market. Offshore wind turbines consist of upper structures composed of blades, turbines, and towers, and substructures such as transition pieces, monopiles, and jackets that support them. The substructure is the support structure installed on the seabed at the bottom of the offshore wind turbine. Established in 1965, Bladt produces all substructures including monopiles, jackets, transition pieces, and OSS (offshore substations), and has solidified its position as a specialized company in offshore wind substructures, ranking first or second in global market share for OSS and transition pieces. However, since Bladt was in a deficit at the time of acquisition, there were concerns about its negative impact on CS Wind's profitability. In 2022, Bladt's performance was sales of 616.2 billion KRW and an operating loss of 0.5 billion KRW. Researcher Jeong said, "In the short term, the operating loss is expected to shrink more than anticipated due to price increases for offshore wind substructures by Bladt." He added, "Profitability improvement is also expected due to the expansion of offshore wind tower production starting in the second half of the year." Researcher Lee Ju-young of Ebest Investment & Securities said, "Bladt's annual performance this year is expected to turn to early profitability with sales of 698.7 billion KRW and operating profit of 6.2 billion KRW."

The recovery of demand in the U.S. is also becoming visible. In 2022, Vestas, which accounts for 54% of CS Wind's sales, recorded a record quarterly new order of 6.9 GW in the fourth quarter. Of these, new orders in the U.S. reached 4.6 GW. The researcher analyzed, "U.S. new orders increased by 516% compared to the same period last year, indicating a rise in wind power demand in the U.S."

The order increase trend is expected to continue this year. Researcher Park Gun-young of Kyobo Securities said, "Considering the order trends of turbine companies, CS Wind is also expected to achieve last year's target order of 1.4 billion USD (about 1.85 trillion KRW), and the order increase will continue this year." He added, "Attention should also be paid to revenue recognition of existing orders due to accelerated progress of front-end projects."

The Key to Future Stock Prices Is the Improvement of the Offshore Wind Market

Recently, the core of new order increases has been the improvement in U.S. onshore wind demand, but opinions suggest that the key to future stock prices lies in whether global offshore wind demand improves. Offshore wind profitability sharply declined as cost increases could not be passed on to electricity prices, leading to the cancellation of many projects. Researcher Jeong said, "This demand slump was partly reflected in the stock price decline of renewable energy companies in 2023." He continued, "However, support policies to revive the depressed offshore wind market have been announced, and offshore wind is gradually emerging from its worst phase." He added, "Since global countries' policies to expand renewable energy remain unchanged, if offshore wind profitability improves through electricity price increases, global offshore wind demand will improve flexibly." He further said, "For CS Wind, which manufactures offshore wind towers and substructures, this means profitability improvement through increased production and overall price increases."

With the U.S. presidential election approaching this year, attention should also be paid to the possibility of reduced benefits from the U.S. Inflation Reduction Act (IRA). Researcher Lee Jin-ho of Mirae Asset Securities said, "If the Republican Party comes to power, some negative impacts seem unavoidable. The Republicans are concerned that the IRA subsidy amount is increasing, causing the national debt to grow unnecessarily." He added, "While checks on China and encouragement of domestic production will continue, the scale of support funds may decrease."