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Growth story continues

Initiate at Buy with a TP of W90,000

We initiate our coverage on Sanil Electric with a Buy rating and target price of W90,000. We derived our target price by applying a P/E of 22x―a 10% premium to the peer average―to our 2025F EPS of W4,068. We think a valuation premium is justified in light of the firm’s high profitability compared to large domestic peers.

Exports accounted for 90% of revenue in 2024, with US share reaching 63%

In 2024, the revenue mix of exports more than doubled YoY to over 90%. In the key US market (63% of export revenue), investments in grid modernization are likely to continue, as the government is introducing a number of policies that should boost large-scale power demand. Sanil Electric is broadening its customer base in the US, securing contracts with companies such as PG&E and Duke Energy (in addition to existing customers GE Vernova and TMEIC). One of the firm’s key strengths is its ability to flexibly meet the diverse technical requirements of large utilities companies (offering transformers in over 200 distinct design configurations); we believe this capability positions the company for sustained order growth, driven by both new customer acquisitions and expanded orders from existing customers.

Top-line growth likely to continue in 2025 on capacity expansion

Order momentum is likely to strengthen on the expansion of distribution (pole- and pad-mounted) transformer production capacity. Sanil Electric has been gradually ramping up operations at a new plant since Dec. 2024; factoring in the increased capacity and FX effects, we estimate the company will generate additional annual revenue of over W100bn. Furthermore, a second capacity expansion is planned for 2026, which should help sustain growth momentum beyond 2025. Backed by continued demand growth, the revenue share of distribution transformers is likely to exceed 50% over the next two years. And as transformer sales expand, the company should continue to benefit from economies of scale, helping to sustain high profitability.

Valuation

The stock is trading at a 2025F P/E of 15.2x, below the domestic peer average. Going forward, however, we expect the stock to command a valuation premium due to: 1) the high share of US-bound exports; and 2) strong profitability.