[Stock of the Week] Hyosung Heavy Industries Surges on Power Equipment Supercycle

This Year's Stock Price Surges Over 200%
Second Quarter Results Beat Market Expectations
"Continued Growth in the North American Market... Heavy Industry Division Expected to Improve Performance"

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Hyosung Heavy Industries has attracted attention by posting strong results in the second quarter. As the company's performance exceeded market expectations, securities firms are unanimously raising their target prices. The stock price is also on a steady upward trend, with this year's increase already exceeding 200%. The securities industry expects Hyosung Heavy Industries to continue improving its performance, driven by growth in the North American market, among other factors.

Hyosung Heavy Industries was relisted in July 2018 after being spun off from Hyosung's heavy industry and construction divisions in June 2018. The heavy industry division produces power equipment such as ultra-high voltage and medium- and low-voltage transformers, circuit breakers, motors, and reducers. The construction division focuses on housing projects centered on reconstruction, as well as commercial facilities, civil engineering, environmental, and OSC (Other Site Construction) businesses.

Second Quarter Results Exceed Market Expectations Thanks to Strong Heavy Industry Division

In the second quarter of this year, Hyosung Heavy Industries posted sales of 1.5253 trillion won and operating profit of 164.3 billion won. This represents increases of 41.74% and 60.43%, respectively, compared to the same period last year. Both figures also exceeded market expectations by 13.4% and 23.3%, respectively.

The heavy industry division recorded sales of 1.0611 trillion won and operating profit of 168.5 billion won. Thanks to expanded global sales and improved profitability, the company achieved its highest-ever quarterly operating profit. The supercycle in power equipment is driving strong demand for high-voltage and large-capacity products. The construction division posted sales of 463.2 billion won, which was an improvement from the previous quarter, but recorded an operating loss of 4.2 billion won. This was due to a 24 billion won provision for bad debt at unsold sites.

Son Hyunjung, a researcher at Yuanta Securities, stated, "The heavy industry division led the earnings surprise, as high-margin orders for ultra-high voltage transformers bound for North America were fully reflected in the results." She emphasized, "The U.S. production subsidiary's operating profit margin (OPM) exceeded 35%, and the power division's OPM also reached 18.7%, demonstrating a step-up in the profitability structure."

Jang Namhyun, a researcher at Korea Investment & Securities, also commented, "Profitability improvements in the heavy industry division drove the strong results. The heavy industry division's operating profit margin was 15.9%, 1.9 percentage points higher than previous estimates, as high-margin U.S. orders were recognized as sales without any one-off factors." He added, "The U.S. production subsidiary's operating profit margin rose from 29% in the first quarter to 35% in the second quarter."

Continued Order Intake... Heavy Industry Division's Growth to Persist This Year

As of the 28th of this month, Hyosung Heavy Industries closed at 1,286,000 won per share. This represents a 227.23% increase compared to the end of last year. Although the stock price has risen sharply, securities firms are raising their target prices further in response to the strong second quarter results. On the 28th and 29th, a total of 12 securities firms released reports on Hyosung Heavy Industries, and all of them raised their target prices.

In particular, the securities industry is also raising its earnings outlook for Hyosung Heavy Industries this year. According to FnGuide, the consensus forecast for this year's sales and operating profit is 5.6549 trillion won and 597.6 billion won, respectively. One month ago, the expected sales and operating profit were 5.4435 trillion won and 529.1 billion won, respectively.

The key driver of improved performance is the heavy industry division. Continued investment in power infrastructure, driven by electrification, carbon neutrality, and artificial intelligence (AI) growth, is expected to sustain high-margin orders bound for the U.S. In the second quarter, new orders in the heavy industry division on a consolidated basis reached 2.197 trillion won, with the order backlog totaling 10.7 trillion won.

Lee Sanghyun, a researcher at BNK Investment & Securities, explained, "Orders for ultra-high voltage power equipment in the Americas region increased significantly, and for the first time, new orders from North America alone exceeded 1 trillion won in a single quarter, which is a remarkable achievement." He added, "The North American share of new orders expanded to 53%, clearly demonstrating this growth."

This strong performance is also expected to ease concerns over the recent sharp rise in the stock price. Han Youngsoo, a researcher at Samsung Securities, noted, "In addition to fundamentals, the recent surge was also influenced by the possibility of MSCI index inclusion and the positive impact from competitors' accounting changes, which alleviated concerns about their results." He emphasized, "The sharp short-term rise had increased the valuation burden for Hyosung Heavy Industries, but the strong second quarter results are likely to prompt upward revisions to market earnings estimates, thereby easing this burden."

Researcher Lee Sanghyun added, "Based on solid order performance in the first half, the heavy industry division is expected to see annual new orders and sales increase by more than 20% year-on-year in 2025, with operating profit margins reaching 12-13%, leading to upwardly revised guidance." He concluded, "Overall, the global market expansion and profitability improvement in the heavy industry division will serve as strong growth drivers and support a positive earnings outlook going forward."