[Into the Stocks] Why Hyosung Heavy Industries Remains Strong Despite Shaking Real Estate Market

Improved Performance Despite Construction Slump Driven by Heavy Industry Sector
Rapid Increase in New Orders Brightens Outlook for Next Year
Order Backlog Up from 2.3 Trillion KRW Last Year to 3.3 Trillion KRW in Q3 This Year

[Asia Economy Reporter Park Hyungsoo] Amid a sluggish construction market, concerns surrounding major domestic construction companies are growing. Hyosung Heavy Industries, well known for its 'Harrington Place' brand, is navigating smoothly by leading with its heavy industry division that produces core equipment for the power industry. Overall performance is improving as overseas orders increase.

According to the financial investment industry on the 16th, Hyosung Heavy Industries' stock price rose 46.3% from November 1 to the 15th. The foreign ownership ratio slightly increased from 7.38% to 8.04%. Domestic institutional investors recorded a cumulative net purchase of 244,000 shares during this period.

Hyosung Heavy Industries' business areas are divided into construction and heavy industry sectors. Based on cumulative sales up to the third quarter this year, the sales ratio by sector is 45.9% for construction and 53.2% for heavy industry. The construction sector includes housing projects, redevelopment and reconstruction projects, office and commercial facilities, civil engineering and environmental projects, and social overhead capital (SOC) projects. The heavy industry sector produces ▲transformers and circuit breakers, which are core equipment for the power industry, and ▲motors and reducers used in industrial production facilities.

Hyosung Heavy Industries experienced a temporary sales decline and operating loss in the first quarter of this year, showing sluggish performance. From the second quarter, sales increased and operating profit turned positive due to rising domestic and international power demand and investment expansion. Profitability improved in the third quarter as well, reflecting high-margin order sales. With an increase in new orders, performance showed improvement. Quarterly new orders recorded 509.5 billion KRW in Q1, 942.6 billion KRW in Q2, and 613.2 billion KRW in Q3. The year-on-year growth rates were 34.1%, 102.8%, and 67.0%, respectively. New orders surpassed 2 trillion KRW in just three quarters, exceeding last year's record of 1.8 trillion KRW. The order backlog increased from 2.3076 trillion KRW at the end of last year to 3.3267 trillion KRW at the end of the third quarter this year.

Lee Sangheon, a researcher at Hi Investment & Securities, explained, "Overseas orders increased as long-term supply contracts were signed with major customers of ultra-high voltage transformers in Europe, including the UK, Norway, and Finland," adding, "Saudi Arabia, which secured investment capacity due to rising international oil prices, is also seeing increased demand related to new city development." He further added, "Hyosung Heavy Industries is benefiting as countries in Africa, such as South Africa and Ethiopia, are expanding their national power grids."

Hyosung Heavy Industries' U.S. sales subsidiary recorded new orders of 200 billion KRW in the first half of this year alone. Including orders in the second half, it is expected to exceed last year's new orders of 300 billion KRW. The ultra-high voltage transformer manufacturing plant in Memphis, Tennessee, acquired in 2019, is reducing its deficit as its operating rate rises in the second half of this year.

With the heavy industry sector performing well, total sales and operating profit increased compared to the same period last year. Based on cumulative figures up to the third quarter this year, sales reached 2.3126 trillion KRW and operating profit 93.4 billion KRW, up 14.4% and 14.9% year-on-year, respectively.

Although concerns about an economic downturn are growing, the performance outlook is bright not only for the fourth quarter of this year but also for next year. Lee Sanghyun, a researcher at IBK Investment & Securities, predicted, "Sales in the heavy industry sector will increase in the fourth quarter, further improving profitability." He estimated that Hyosung Heavy Industries would achieve sales of 1.2968 trillion KRW and operating profit of 54.4 billion KRW in the fourth quarter, representing increases of 21% and 40%, respectively, compared to the same period last year.

Growth is expected to continue next year, centered on overseas orders. Overseas, the company is expanding its business area into energy storage systems (ESS) linked to renewable energy such as solar and wind power. In March, it agreed to supply ESS worth 122.2 billion KRW to South Africa. In September, it secured an ESS order worth 235.7 billion KRW related to the expansion of the national power grid in southern Ethiopia. Orders related to power system infrastructure investment in the U.S. are also increasing.

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