Top 3 Power Equipment Companies Expected to Surpass 1 Trillion Won in Operating Profit
Surging Demand from 'AI Boom' and U.S. Power Grid Replacement Overlap
Sales of Korea's top three power equipment companies?HD Hyundai Electric, Hyosung Heavy Industries, and LS Electric?are expected to surpass 10 trillion won for the first time. This is the result of the power infrastructure market entering a golden age in the era of artificial intelligence (AI). Operating profits are also expected to exceed 1 trillion won for the first time.
According to securities firms and the power industry on the 22nd, the combined sales of HD Hyundai Electric, Hyosung Heavy Industries (excluding construction), and LS Electric last year are expected to reach 10.7925 trillion won, with operating profits amounting to 1.3329 trillion won.
HD Hyundai Electric announced its Q4 2024 earnings on the 20th. The cumulative annual sales reached 3.3223 trillion won, a 22.9% increase from 2.7028 trillion won the previous year, setting a record high. Operating profit doubled from 315.2 billion won in 2023 to 669 billion won.
Hyosung Heavy Industries is expected to announce its last year's results early next month. Tentatively, sales are projected at 3.166 trillion won and operating profit at 361.9 billion won. These represent growth rates of 22.7% and 73.1%, respectively, compared to 2.5803 trillion won and 174.5 billion won in 2023.
LS Electric plans to disclose its Q4 results on the 23rd. Securities firms forecast 2024 sales of 4.3042 trillion won and operating profit of 361.9 billion won. For the same period in 2023, sales were 4.2305 trillion won and operating profit was 324.9 billion won.
Reflecting the provisional Q4 results, the operating profit margins for the three companies last year were 20.1% for HD Hyundai Electric, 9.5% for Hyosung Heavy Industries, and 8.4% for LS Electric.
Hyosung Heavy Industries' extra-high voltage transformer factory located in Memphis, Tennessee, USA. Provided by Hyosung Heavy Industries
The rapid growth of these power equipment manufacturers is driven by the 'AI boom.' Ultra-high voltage transformers are essential for AI data centers, which consume large amounts of electricity, but supply currently cannot keep up with demand. Especially in the U.S. market, where the typical 30-year replacement cycle for aging power grids overlaps, an environment favorable for Korean power equipment companies to gain a competitive edge has been created.
HD Hyundai Electric recently announced plans to invest 396.8 billion won in expanding ultra-high voltage transformer production facilities both domestically and abroad. They are constructing a new factory on the site of their Ulsan plant and building a second factory in Alabama, USA, focusing on increasing production capacity. Once the expansion is complete, production at the Alabama plant will increase by about 50%. Combined expansions at both plants are expected to raise total production by 27.5%.
Hyosung Heavy Industries announced a 100 billion won factory expansion in June last year. In December 2019, it acquired an ultra-high voltage transformer production base in Memphis, Tennessee, USA, from Mitsubishi Heavy Industries, Japan, and has been steadily expanding it. Although operating rates were relatively low during the pandemic due to difficulties in securing manpower, normalization began last year, and orders from the U.S. continue to increase.
LS Electric also decided on a 160 billion won investment. They are constructing a new factory on idle land at their Busan plant and investing 100.8 billion won to expand two vacuum pressure drying (VPD) facilities. To strengthen technology, they spent 59.2 billion won acquiring the domestic SME KOC Electric. They also established a distribution system production line at their first base in Bastrop, Texas, USA. Production capacity is expected to expand to 800 billion won by the end of this year.
The three companies are competing with different strengths. HD Hyundai Electric was the first domestic power equipment manufacturer to establish a corporation in the U.S. in 2011 and continued bold facility investments even during difficulties after its spin-off in 2017. This proactive investment is widely regarded as paying off.
Hyosung Heavy Industries' competitive edge lies in its technological capabilities through continuous research and development (R&D). With steadily expanding local production capacity, cost efficiency is also expected to improve. LS Electric, although the last among the three to establish a local base, is noted for its strength in the distribution panel sector.
Since these companies have production facilities established locally, they are relatively free from the 'Trump risk'?high tariffs and other concerns faced by other industries. Industry insiders predict this boom could continue for 10 to 15 years. Bloomberg New Energy Finance (BNEF) forecasts that global power grid investment will surge from $235 billion in 2020 to $532 billion in 2030 and $636 billion by 2050.
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