[Click eStock] "Iljin Electric, Profitability Upgraded... Target Price Raised"

Yuanta Securities announced on August 14 that it has raised its target price for Iljin Electric to 47,000 won, citing the company's successful defense of profitability driven by rapid growth in its heavy electric equipment division.

In the second quarter of this year, Iljin Electric's consolidated revenue reached 522.8 billion won, up 20.5% year-on-year, while operating profit increased by 53.4% to 37.6 billion won. The operating profit margin (OPM) stood at 7.2%.

Son Hyunjung, an analyst at Yuanta Securities, explained, "Despite the imposition of the 10% universal tariff by the United States, the expansion of high-margin product sales led to a 5 percentage point improvement in gross profit margin compared to last year. Although variable costs such as commission fees, transportation expenses, and sales guarantee costs increased due to higher sales, the company successfully defended its overall profitability, with operating profit meeting both our estimates and market consensus."

The key driver of profitability improvement was the heavy electric equipment division. Revenue from this division reached 192 billion won, up 131.7% year-on-year, while operating profit surged by 118.5% to 23.9 billion won. Shipments of transformers to the United States worth approximately 30 billion won were delayed during the quarter and are expected to be recognized as revenue in the second half of the year. The order backlog hit an all-time high of about $1.9 billion.

Son highlighted, "Notably, the heavy electric equipment division's order backlog stands at $1.24 billion, accounting for 66% of the total, with 83% destined for overseas markets and 74% specifically for the United States. The increasing proportion of high-value overseas orders is a key driver supporting future profitability upgrades."

In the third quarter, revenue may slow quarter-on-quarter due to seasonality and early shipments aimed at avoiding tariffs. However, in the fourth quarter, the effects of transformer capacity expansion and continued shipments for high-value U.S. projects are expected to drive a rebound in both revenue and profitability.

He added, "Although the reciprocal tariff rate for U.S. transformers was raised to 15% starting in August, the cost burden from the tariff hike will be limited, as most major clients have agreed to pass on the tariff. In addition, ultra-high voltage cables of 1kV or higher are excluded from the 50% tariff on copper derivative products, so the tariff burden in the second half will be virtually negligible."

Yuanta Securities forecasts Iljin Electric's consolidated revenue for this year at 1.9363 trillion won (up 22.8% year-on-year) and operating profit at 143.6 billion won (up 80.0% year-on-year, OPM 7.4%). In particular, operating profit from the heavy electric equipment division is expected to more than double year-on-year, driven by capacity expansion and a higher share of U.S.-bound sales. From 2026, revenue visibility is expected to improve further as deliveries under a long-term supply contract with the U.S. Eastern Power Authority (worth 430 billion won from 2026 to 2030) are reflected in sales.

He assessed, "The current share price is undervalued at 14.6 times the estimated 2026 price-to-earnings ratio (PER), compared to the domestic industry average of 18 times. Considering next year's earnings momentum, there is ample room for a valuation re-rating."