[Company Exploration] CS Wind Gains Wings in Wind Power Market Growth Phase

Investment in Overseas Production Plant Acquisition... Benefiting from Growth in the US and Europe
Q2 Results Exceed Expectations... Full-Scale Growth Starting Next Year

Following the implementation of the U.S. 'Inflation Reduction Act' (IRA), which includes an investment of $369 billion (approximately 484 trillion KRW) to reduce greenhouse gas emissions, expectations for growth in the renewable energy industry?such as decarbonization, wind power, solar power, batteries, and green hydrogen?are rising. By providing tax credits and subsidies for eco-friendly energy sources like solar, wind, and hydrogen, as well as the electric vehicle and battery industries, the 'green industry' market is expected to grow rapidly. Interest in eco-friendly industries that can replace natural gas has increased due to the aftermath of the Russia-Ukraine war, and combined with the U.S. government's active promotion policies, growth opportunities have emerged for domestic eco-friendly companies. Asia Economy reviewed the management status and growth potential of Hanwha Solutions and CS Wind, which are considered related companies.

[Asia Economy Reporter Hyungsoo Park] CS Wind has steadily acquired wind tower factories overseas. Although profitability deteriorated due to rising costs, the potential benefits from the growth phase of the wind power markets in the U.S. and Europe have increased.

CS Wind and its affiliates are engaged in the production of wind towers and components such as bearings. They operate overseas tower manufacturing subsidiaries in Vietnam, the U.S., Portugal, Malaysia, China, Turkey, and Taiwan, supplying wind towers to markets worldwide, including Europe, the U.S., and Asia. To strengthen market competitiveness with a focus on offshore wind power, they have also newly started a business for offshore wind tower substructures.

Offshore wind power requires various types of substructures. From 2024, demand for large-diameter substructures in the European market is expected to exceed supply by five times. In July last year, CS Wind acquired a European offshore wind and substructure manufacturer. This not only expands offshore wind tower production in the European market but also marks a full-scale entry into the substructure business, including monopiles, thereby enhancing competitiveness.

Wind power tower production is based on small-lot, multi-variety manufacturing depending on installation location and local climate characteristics, with product specifications varying according to customer requests and project orders. Major customers include leading wind turbine manufacturers such as Germany's Siemens Gamesa (SGRE) and Denmark's Vestas. As of the end of the first half of this year, the total order backlog was $580 million.

Sales of wind turbine components are made in a turnkey manner, where wind turbine manufacturers purchase all related parts and supply them collectively to wind power complexes. CS Wind's revenue is generated through these wind turbine manufacturers.

CS Wind builds strategic relationships with wind turbine companies and signs long-term supply contracts. Considering the long-term nature of wind farm construction, they monitor progress from the bidding stage to project award and reflect this in production planning.

Although wind farm construction takes several years from initial preparation to power generation, tower production is usually completed within 13 to 15 weeks after order placement. Since the tower production period is shorter than the construction period and payment can be requested from customers upon completion, cash flow is smooth. They pass on 70% of raw material costs, which correspond to the order price, to customers.

CS Wind's performance was sluggish in the first quarter of this year but exceeded market expectations in the second quarter. In Q2, they recorded sales of 327.5 billion KRW and operating profit of 19.3 billion KRW. Compared to the same period last year, sales increased by 17.4%, while operating profit decreased by 31.6%. Operating profit exceeded the market expectation of 13.9 billion KRW.

Researcher Jonghyung Lee of Kiwoom Securities explained, "The U.S. subsidiary, which posted losses in Q1 due to supply disruptions of major raw materials, turned profitable thanks to increased orders for Vestas. The Chinese subsidiary's operating rate, which had declined in Q1 due to COVID-19 impacts and power issues, has also improved."

He added, "The newly acquired Portuguese subsidiary last year recovered profitability by reallocating personnel and improving production efficiency. The exchange rate increase also positively affected performance."

Fixed costs increased at the tower factories acquired in the U.S. and Portugal, and production yield was low, resulting in poor Q1 performance. There were also one-time factors such as reduced operating days at the Chinese and Portuguese subsidiaries and fuel restrictions due to COVID-19. Thanks to improvements in these Q1 weaknesses and continued investment, CS Wind is expected to grow alongside the rapidly expanding wind power markets in Europe and the U.S.

Researcher Byunghwa Han of Eugene Investment & Securities analyzed, "Annual wind installation volumes in both the U.S. and Europe are expected to more than double compared to the boom period. CS Wind operates production bases directly in the European market through its factories in Portugal and Turkey, and its Vietnam factory also responds to European demand."

He added, "In the U.S., they own the world's largest single wind tower factory. Due to the IRA, additional bonuses will be given for projects starting construction by 2024, which will significantly increase installation demand."

CS Wind's debt ratio slightly increased from 46.6% at the end of last year to 47.9% in the first half of this year. The liquidity ratio recorded 171%.

This content was produced with the assistance of AI translation services.