[Click eStock] "Key Issue for HD Hyundai Electric: Ability to Pass on Tariff Costs"

IBK Investment & Securities has raised its target price for HD Hyundai Electric to 560,000 won. The adjustment was made because the company recorded its highest-ever operating margin in the second quarter, and there is anticipation for further growth potential, such as expansion in the European market. However, the firm noted that attention should be paid to whether costs can be passed on in response to the mutual tariffs imposed by the United States.

In the second quarter, HD Hyundai Electric posted sales of 906.2 billion won and operating profit of 209.1 billion won, both of which fell short of market expectations. However, due to the recognition of sales from high-margin orders and the reversal of anti-dumping duties, the operating margin reached a record high of 23.1%.

By segment, sales of power equipment increased to 484 billion won. Sales of rotating equipment, such as rotating machinery and low-voltage motors, saw a slight increase to 146 billion won. In contrast, sales of distribution equipment decreased by 24.4% due to a high base effect from approximately 70 billion won in ESS project sales reflected in the previous year.

Kim Taehyun, a researcher at IBK Investment & Securities, stated that concerns about a demand peak-out for HD Hyundai Electric are limited, and there is still additional upside potential for the stock price.

Kim explained, "Currently, the Ulsan and Atlanta, United States plants are operating at full capacity, and deliveries are proceeding as scheduled, so concerns about a demand peak are limited except for changes in revenue recognition standards. Although mutual tariffs are being imposed by the United States, the supplier-favorable order environment continues, so after the final tariff rate is confirmed, it is expected that costs can be passed on to customers for both the order backlog and new orders."

He added, "There is also valid anticipation for business expansion in the European market through the advancement of eco-friendly high-voltage circuit breaker products. Accordingly, we maintain our buy recommendation and raise the target price by 21.7% to 560,000 won."