'Big 3' Q1 Facility Investment Doubles YoY
LS Elec Says "Doubling Production Capacity"
As the demand for electricity from companies increases due to the artificial intelligence (AI) boom, the top three power equipment manufacturers (LS Electric, HD Hyundai Electric, and Hyosung Heavy Industries) are making aggressive investments. LS Electric announced plans to double its production capacity by October next year to accelerate its global market expansion, including North America. The three companies' capital expenditures in the first quarter were twice the size of the same period last year.
First, LS Electric disclosed on the 21st that it plans to increase the production capacity of ultra-high voltage transformers at its Busan plant from about 200 billion KRW annually to about 400 billion KRW by October next year. The factory expansion will be completed by September next year. The Busan plant is LS Electric's core production base for ultra-high voltage power equipment. LS Electric stated that it has already secured orders through 2026, amounting to more than 400 billion KRW annually. The company aims to expand its ultra-high voltage transformer production capacity to secure a business portfolio covering transmission, substation, and distribution.
An LS Electric official said, "We have already secured orders exceeding the increased production capacity from this expansion and will actively respond to the surging overseas demand for ultra-high voltage transformers in markets such as North American investor-owned utilities (IOUs) and renewable energy. This investment is not aimed at short-term profits based on the current boom but is a sustainable future growth investment." He added, "We will continue to expand our power infrastructure business through various methods such as mergers and acquisitions (M&A) and joint ventures both domestically and internationally."
All three companies are increasing production capacity and capital investment in preparation for a long-term boom. According to the first-quarter reports of these 'big three' power equipment manufacturers, their capital expenditures during this period amounted to 42.231 billion KRW, an increase of 112.1% compared to 19.91 billion KRW in the same period last year. LS Electric's investment increased by only 7.3% to 14.194 billion KRW during the same period, but HD Hyundai Electric's investment surged by 737% to 21.192 billion KRW from 2.532 billion KRW in the previous year. Hyosung Heavy Industries increased its investment by 64.9% to 6.845 billion KRW from 4.152 billion KRW in the same period last year.
Most of the capital investment was for new or expanded factories. HD Hyundai Electric invested 14.4 billion KRW to purchase land for a smart factory for low- and medium-voltage circuit breakers and 2.214 billion KRW in a transformer core factory. Additionally, HD Hyundai Power Transformers spent 4.572 billion KRW to expand its transformer storage yard and material warehouse at its North American subsidiary. LS Electric invested 1.457 billion KRW in new facilities such as buildings, machinery, and molds in the first quarter, while Hyosung Heavy Industries spent 1.826 billion KRW on new and expanded factories. This amount represents a 52% increase compared to 1.21 billion KRW in the same period last year.
The increase in investment is due to the surge in transformer demand, which has also led to strong performance. LS Electric's operating profit rose 14.6% year-on-year to 93.7 billion KRW. HD Hyundai Electric and Hyosung Heavy Industries recorded operating profits of 128.8 billion KRW (up 178.1%) and 56.2 billion KRW (up 298.2%), respectively.
Looking at the increase in capital expenditures and the nature of the investments, there is an analysis that the possibility of a long-term boom is high. The securities industry expects that since power grid investments will take at least five more years, there will be growth momentum factors for more than three years ahead. Choi Moon-sun, a researcher at Korea Investment & Securities, said, "We expect more Korean companies to build more local factories in the U.S., and U.S. power grid investments will become more active in the future."
LS Electric stated in its quarterly report, "Global power grid investments are expected to increase from $235 billion (about 327 trillion KRW) in 2020 to $636 billion (about 886 trillion KRW) by 2050." It added, "The U.S. announced the 'Low Carbon and Clean Infrastructure Investment Plan' in March 2022, which is expected to increase market potential, and Korea also announced a power system innovation plan, planning to invest about 75 trillion KRW by 2030 to expand the power grid, so substation construction projects will continue to expand."
In fact, the order backlogs of these companies were 2.6 trillion KRW for LS Electric (up 13% year-on-year), 6.9 trillion KRW for HD Hyundai Electric (up 66.4%), and 4.1 trillion KRW for Hyosung Heavy Industries (up 17.1%).
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