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Another earnings surprise

1Q24 review: Both revenue and OP beat consensus

For 1Q24, HD Hyundai Electric posted another earnings surprise, with revenue of W801bn (+41% YoY; 12% above consensus) and operating profit of W128.8bn (+178% YoY; 55% above consensus). Despite unfavorable seasonality, power transformer sales in North America remained strong, leading to robust growth across various product categories. We believe the results were impressive even when considering one-off gains of W15bn stemming from the early recognition of ESS revenue for the Shin-Namwon substation, raw material cost savings, and a provision writeback of W5bn.

OP margin reaches 16.1% amid favorable FX (revenue share of exports: 62%)

Profit growth in 1Q24 was supported by solid growth in high-margin power equipment sales in North America and the Middle East as well as increased sales of distribution equipment (including pad-mounted transformers). With North America accounting for 57.5% of the firm’s order backlog (as of 1Q24), management expects the elevated USD/KRW rate to benefit 1H24 earnings. The firm has also enjoyed rapid growth in new orders, achieving 40% of its full-year order guidance (US$3.7bn) in 1Q24 alone. Amid a surge in US electricity demand (driven by US manufacturers’ reshoring and the proliferation of data centers), the company continues to receive inquiries related to renewable energy projects (generation/transmission) and supplies to data centers (big tech firms such as Google and Meta).

Lift TP by 62% to W300,000; retain Buy rating

We raise our target price for HD Hyundai Electric by 62% to W300,000, as we changed our valuation base to 2025 and reflected the average 2025F P/E of global peers. In 2H24, the firm is set to complete transformer capacity ramp-ups in Ulsan (Korea) and Alabama (US), which should contribute an additional W220bn in revenue starting next year. We also expect earnings growth to be supported by tight supply (estimated delivery time for orders in progress: 2028-29), market growth, and mix improvements. The stock is trading at a 2025F P/E of 18x, but we see further upside, as the company and other global players have yet to aggressively expand capacity, likely leading to a prolonged seller’s market.