[Click eStock] "HD Hyundai Electric to Recover in Second Half After First-Half Correction... Target Price Raised"

Yuanta Securities announced on April 14 that it maintains a positive outlook for HD Hyundai Electric's annual performance and has raised its target price from 1.16 million won to 1.32 million won. The investment opinion remains at 'Buy'.

Hyunjung Son, a researcher at Yuanta Securities, commented, "Both demand and orders remain robust, and the earnings structure based on a backlog of high-priced orders is also being maintained," adding, "Following a correction in the first half, the recovery trend in the second half supports the upward trajectory in annual performance."

HD Hyundai Electric's first-quarter results this year are expected to fall short of market expectations. Researcher Son forecasts, "First-quarter revenue is projected at 1.0613 trillion won, up 4.6% year-on-year, and operating profit is expected to increase by 22.8% to 267.9 billion won, both slightly below consensus (the average estimate from securities firms)," noting, "This is not due to a decline in demand, but rather the result of differences in the timing of revenue recognition."

With an increase in shipments to North America in the first quarter, sales and profits on a consolidated basis are being partially deferred as more finished goods are shipped after production. In addition, some revenue from Middle East projects is being deferred to the second and third quarters, leading to greater quarterly earnings volatility. Researcher Son explained, "In the case of the Middle East, recent geopolitical uncertainty stemming from heightened tensions between the US and Iran appears to have caused some project delays and postponed revenue recognition," adding, "However, this is unrelated to a slowdown in production or orders, and instead, it is a period during which future sales volume is accumulating."

The profit margin is expected to remain structurally high. Son pointed out, "While margin volatility may occur depending on quarterly shipment concentration, taking into account the conversion of high-priced order backlogs into sales and an improved product mix, the upward trajectory in annual profit margin compared to last year remains valid."

Demand continues to expand on a structural basis. The increase in gigawatt (GW)-level electricity demand from artificial intelligence (AI) data centers, along with the continued trend of investment in ultra-high voltage transmission, is ongoing. According to Son, "In particular, the order intake trend remains positive. Early in the year is when major customers finalize their budgets, marking the period when new orders begin in earnest. Demand for HD Hyundai Electric's ultra-high voltage transformers and power distribution equipment is believed to be even stronger year-on-year. While order expansion centered on North America continues, demand for long-lead items is also forming in new markets such as Europe, which is also a positive sign."

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