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Substructure profitability finally confirmed

Reiterate Buy and TP of W62,000

We reiterate our Buy rating and target price of W62,000 on CS Wind. For 1Q25, the company delivered a substructure OP margin of 26%, confirming that last year’s closely watched pricing negotiations have led to structural improvement in profitability and helping to dispel concerns about the sustainability of double-digit margins. While sentiment on the wind power sector has weakened since Trump’s election win, dragging down the stock, we see significant upside potential given the firm’s strong 1Q25 results and the solid earnings outlook for 2Q25 and 3Q25. That said, with the European offshore wind market slowing down, order visibility for substructure projects in late 2025 and 2026 bears close monitoring.

1Q25 review: Substructure profitability finally confirmed

For 1Q25, CS Wind reported operating profit of W125.2bn (+170.2% QoQ; OP margin of 13.9%), beating the consensus by 29%. We estimate the tower business posted operating profit of W66.4bn (including W40.6bn from AMPC recognition), while substructure operating profit likely reached W57.6bn. The consensus beat appears to have been driven by: 1) increased contract values in the substructure segment; and 2) the recognition of deferred tower volume from 4Q24. Although the substructure business has recorded strong margins since 2024, those results included significant one-off gains (e.g., write-backs on projects nearing completion), raising questions about sustainability. In 1Q25, however, the business posted an OP margin of 26%, primarily reflecting improved pricing terms. While incentive payments for on-time deliveries also contributed to some extent, we believe this result is clear evidence that the segment’s strong profitability is sustainable.

2Q25 preview: Substructure profitability likely to remain high

For 2Q25, we expect CS Wind to post operating profit of W105.8bn (OP margin of 12.5%), falling 15% QoQ due to slight declines in both the tower and offshore segments but remaining solid overall. For towers, AMPC recognition in 1Q25 was larger than usual due to deferred revenue recognition, but this factor will be absent in 2Q25. Offshore profits are also likely to decrease QoQ due to lower revenue, but OP margin is still likely to exceed 20%. While incentive payments for on-time deliveries will not be repeated, the business will likely book cancellation fees from a US offshore project, supporting overall earnings.