[Edaily Reporter PARK MIN ] On the 28th, Yuanta Securities Korea analyzed that while profitability at HD HYUNDAI ELECTRIC(267260)temporarily slowed in the third quarter due to changes in the revenue mix and a decline in the exchange rate, growth in the core North American market and structural demand driven by Big Tech remain robust.

However, reflecting a valuation adjustment across the global power equipment sector, the firm lowered its target price by 19.3% from 1,165,000 won to 940,000 won. Based on the previous trading day’s closing price (450,000 won), the stock has upside potential of 109%.

In a report published today, Son Hyun-jung, an analyst at Yuanta Securities Korea, noted, “HD HYUNDAI ELECTRIC’s third-quarter consolidated revenue rose 18.5% year-over-year to 1.1799 trillion won, while operating profit increased 15.1% to 284.5 billion won (operating margin of 24.1%), which was generally in line with our estimates.”

She cited changes in the regional sales mix and shipments to Europe as factors behind the slight slowdown in profitability. Analyst Son noted, “Profitability in the power equipment segment slowed as low-margin orders secured in Europe in 2023 were recognized as revenue, and and while the share of domestic sales rose from 22.5% in the previous quarter to 31.0%—driven in part by revenue from battery energy storage systems (BESS) (125 billion won)—the share of high-margin North American sales fell from 47.5% to 38.0%, leading to a slowdown in consolidated profitability,” he explained.

However, the company noted, “Despite the burden of a weakening exchange rate, the operating profit margin of the North American business has improved for three consecutive quarters, and pricing for new orders continues to rise, so there is no need to view this as a weakening of the competitiveness of the core North American business.”

Yuanta Securities Korea assessed that revenue growth driven by aggressive capacity expansion is evidence of expanding demand from Big Tech companies. The new ultra-high-voltage transformer plant in Ulsan is set to begin operations this November, and with stabilization occurring faster than expected, the company is projected to fully utilize the additional production capacity (CAPA) of 40 to 50 units by 2027, generating over 200 billion won in additional annual revenue.

Supplies of distribution transformers to North American Big Tech companies have also entered a phase of full-scale production. Analyst Son stated, “As individual orders begin to roll in under the long-term supply agreement (LTA) signed with Company A last July, sales of distribution transformers are expected to expand from the current level of 100–120 billion won to a maximum of 300 billion won by 2027,” and “To meet this additional demand, the company has confirmed plans to invest 198 billion won in its distribution transformer campus in Cheongju, North Chungcheong Province, to expand production capacity to 250 billion won in annual sales,” he added.

He further predicted, “This investment, intended to proactively address potential production capacity shortages in 2028, is centered on distribution transformers for data centers, and we expect to maintain high profitability through efficiency improvements resulting from product standardization and mass production.”

Order momentum remains strong as well. As of the end of the third quarter, the order backlog stood at $8.84 billion, a 26.6% increase year-over-year, and the company is expected to sign new long-term supply contracts with Companies B, C, and D by the end of November.

Analyst Son stated, “Annual operating profit in 2027 is projected to reach 1.5637 trillion won, a 35.0% increase from the previous year,” and “Although we have adjusted the target price by lowering the target price-to-earnings ratio (Target PER) to 23.4x to reflect the decline in peer group multiples, the company’s medium- to long-term investment appeal remains high, based on earnings visibility and additional order wins, as there is no structural deterioration in Chonbang demand.”