Q2 Operating Profit Above Consensus Of KRW 104.2 Billion

LS ELECTRIC

Target price raised by 275,000 won

1. Q2 Operating Profit Above Consensus Of KRW 104.2 Billion

It is expected to exceed market expectations by achieving sales of KRW 1.206.6 trillion (yoy +0.4 percent) and operating profit of KRW 104.2 billion (yoy -0.7 percent, OPM 8.6 percent) in the second quarter. Strong sales of distribution boards toward North America are estimated to be the main factors in the robust power device business and power infrastructure business. It is somewhat regrettable that the automation and renewable business sectors and subsidiaries continue to suffer from poor performance. The automation business sector is expected to see a rebound in the second half of the year as domestic investment recovers. The new and renewable business sector is expected to shrink its deficit due to the expansion of sales volumes of new and renewable projects at home and abroad.

2. Increasing ability to respond to ultra-high voltage transformers is noted

The company is currently producing ultra-high voltage transformers directed to North America at its Busan site. The company's demand for ultra-high voltage transformers is also increasing rapidly thanks to the recent expansion of its global new and renewable energy business and increased investment in AI& data centers, and the backlog of orders at its Busan site is expected to grow nearly 60% this year compared to last year. Accordingly, the company plans to invest about 140 billion won to expand the production capacity of its Busan site. About 57% of the investment will be invested in the construction of a second production building at its Busan site, and the remaining 43% is being invested to consider acquiring KOC, a transformer company for ships. KOC has experience in supplying ultra-high voltage transformers to KEPCO. When the expansion and acquisition are completed smoothly, the company estimates that it will be able to secure more than twice the current production capacity.
It is expected to reflect increased production capacity after 4Q25 and lead to increased sales of ultra-high voltage transformers and improved profitability.

3. Investment Opinion BUY raises target price to KRW 275,000

It expects sales of KRW 4.39 trillion (yoy +3.9%) and operating profit of KRW 361 billion (yoy + 11.1% and OPM 8.2%) in 2024. The performance growth of the power business segment is expected due to strong demand for power devices. In addition to the increase in orders for ultra-high voltage transformers, the power business segment is expected to continue to grow as it is seeking to enter the distribution network of power devices in North America and secure orders for distribution boards in North America. In the process, the company plans to build a technology center, provide logistics and services through direct investment in its North American base, and support smooth expansion of its North American business. The target stock price will be raised to KRW 275,000 by maintaining its investment opinion BUY, raising its earnings estimate, and reflecting the increase in global Peer's valuation

(24. 7. 9 Kiwoom)