Daishin Securities announced on July 29 that it has lowered its target price for HD Hyundai Electric from 1.5 million won to 1.15 million won, reflecting uncertainties in investments from major U.S. tech companies. However, the firm maintained its 'buy' rating.
Heo Min-ho, a researcher at Daishin Securities, stated, "The target price was adjusted due to uncertainties in the growth rate of AI data center infrastructure investments stemming from deteriorating free cash flow among U.S. tech giants, declining valuations of global peers, and interest rate hikes by the Bank of Korea. However, considering the solid performance in the second quarter, the expansion of direct supply to AI data centers, and the growth in sales of distribution products, the market's concerns appear excessive."
For the second quarter of this year, HD Hyundai Electric reported consolidated sales of 1.142 trillion won, a 26% increase compared to the same period last year, with operating profit rising 37% to 287 billion won. The operating profit aligned with market consensus of 285 billion won. New orders reached $1.44 billion, a 45% increase, while the order backlog grew 30% to $8.49 billion.
Heo anticipates continued improvement in the profitability of the distribution equipment business. He explained, "In the second half, sales of high-margin power equipment, which were delayed due to customer delivery schedules, are expected to recover, and additional profitability improvements in the distribution equipment business are anticipated due to price increases for medium and low-voltage circuit breakers."
The expansion of orders for AI data centers is also seen as a positive factor. The company plans to increase the share of data center orders within its new power equipment orders from 1.8% last year to 6.3% this year and 16.0% next year. Daishin Securities forecasts that additional expansions will be inevitable, considering the expected increase in utility volumes and the expansion of orders for data centers.
Heo noted, "Recently, we signed a long-term supply contract for power and distribution transformers worth approximately 1.1 trillion won with a major tech company, and further supply contracts are expected after deliveries in 2027-2028. It is also reported that discussions are ongoing with other major tech firms regarding power and distribution package supply contracts, indicating that entry into the high-end market is occurring sooner than previously anticipated."
* This article has been translated by AI.
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