Surpassing 4 Million Won in a Week... Which ETF Saw Massive Buying Despite Weak Q1 Earnings?

The returns of exchange-traded funds (ETFs) focused on electric power equipment have been soaring. This is attributed to rising stock prices fueled by expectations, as orders have increased significantly despite first-quarter results from electric power equipment companies falling short of market expectations.

Hyosung Heavy Industries' 200MW-class HVDC system supplied to Korea Electric Power Corporation's Yangju Substation. Hyosung Heavy Industries.

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According to ETFCheck as of April 28, over the past week, the TIGER Korea AI Electric Power Equipment TOP3 Plus ETF surged by 27.31%, recording the highest return among non-leveraged and non-inverse ETFs. KODEX AI Electric Power Core Equipment rose by 26.96%, and HANARO Electric Power Equipment Investment increased by 26.95%, with all top three returns coming from electric power equipment ETFs.

As companies continue to announce their first-quarter results, electric power equipment manufacturers have posted figures below market forecasts. On a consolidated basis, Hyosung Heavy Industries reported first-quarter sales of 1.3582 trillion won, up 26% year-on-year, and operating profit of 152.3 billion won, an increase of 48.8%. However, Hyosung Heavy Industries' first-quarter operating profit consensus (the average estimate by securities firms) was 168.3 billion won, falling short of market expectations.

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LS ELECTRIC recorded first-quarter sales of 1.4 trillion won, up 33.4%, and operating profit of 126.6 billion won, up 45%. However, its operating profit was still about 5% below consensus.

However, market attention shifted from the disappointing earnings to the surge in new orders. Minjae Lee, a researcher at NH Investment & Securities, said, "Although both domestic and overseas electric power equipment companies reported first-quarter results below consensus, new orders increased significantly. The reasons for the underperformance compared to consensus include a sharp rise in raw material prices, accounting recognition standards, and increased personnel costs from capacity expansion. However, new orders saw a substantial increase, mainly due to expanded investments in North American data centers, leading to either an increase in new clients or higher demand from existing clients."

Hyosung Heavy Industries secured the largest-ever U.S. 765kV transmission grid order among domestic electric power equipment companies (787 billion won), and recorded its highest-ever quarterly new orders centered on the highly profitable North American market. New orders amounted to 4.1745 trillion won, and the order backlog reached 15.1 trillion won. Dongheon Lee, a researcher at Shinhan Investment Corp., stated, "Hyosung Heavy Industries' first-quarter results fell short of expectations due to deferred revenue recognition, but new orders grew explosively instead." He added, "The order backlog for electric power equipment alone stands at 15 trillion won, securing nearly four years' worth of volume." Shinhan Investment Corp. raised its target price for Hyosung Heavy Industries from 2.9 million won to 4.2 million won, believing that the boom in the North American market will not end soon in light of reshoring, aging power grids, and continued investments in artificial intelligence (AI) data centers. Buoyed by these prospects, Hyosung Heavy Industries' stock price surpassed 4 million won intraday for the first time on the previous day.

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LS ELECTRIC also reached a new all-time high, rising to 261,500 won intraday. Hyejung Jung, a researcher at KB Securities, said, "LS ELECTRIC's performance and orders will be driven by strong demand for switchboards and distribution equipment in the distribution sector, which is now beginning to take off alongside the ongoing boom in the transmission sector." She added, "First-quarter order backlog expanded to 5.6 trillion won, and with steady orders from existing clients and the expectation of acquiring new clients during the year, the scale of orders is expected to grow rapidly over the next few years."

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