South Korea's three major power equipment makers are forecast to post record-high operating profits this year, as the spread of artificial intelligence (AI) data centers combines with US-led power grid replacement demand to drive a surge in orders for ultra-high voltage transformers, circuit breakers and other new power equipment. All three companies already saw first-quarter operating profits jump around 40 to 50 percent.
According to financial data provider FnGuide on Tuesday, securities analysts expect LS Electric to post annual operating profit of 645.1 billion won this year, a 51.3 percent surge from 426.4 billion won the previous year. Hyosung Heavy Industries' (298040) annual operating profit consensus stands at 1.0942 trillion won on a consolidated basis including its construction division, up 46.5 percent from 747 billion won a year earlier. HD Hyundai Electric (267260) is projected to grow 25.6 percent to 1.2499 trillion won from 995.3 billion won. The three companies' combined operating profit consensus for this year is approximately 2.9892 trillion won, approaching the 3 trillion won mark.
Behind this strong outlook is the expansion of power infrastructure investment originating in the United States. Analysts say power demand is rising rapidly amid AI data center expansion, while demand is also growing from the global replacement of aging power grids. In particular, the continued modernization of power grids and expanded infrastructure investment, centered on the United States, is driving growth in the power transmission and distribution market. According to the industry, global data center electricity consumption is projected to more than double from approximately 415 TWh in 2024 to around 945 TWh by 2030 as AI data centers expand.
Underpinning this profitability improvement is a growing order backlog. According to Hyosung Heavy Industries' recently filed first-quarter report, its order backlog excluding the construction division stood at 20.1964 trillion won at the end of March, surpassing the 20 trillion won mark for the first time. This represents a 32 percent increase from 15.281 trillion won at the end of last year. New orders in the first quarter on a consolidated basis reached 6.2332 trillion won, far exceeding both the 2.7376 trillion won posted in the first quarter of last year and the typical quarterly new orders that had hovered in the 2 trillion won range.
HD Hyundai Electric's order backlog at the end of the first quarter stood at $7.888 billion (approximately 11.6 trillion won), up 17.2 percent from the end of last year. LS Electric's order backlog at the end of the first quarter also rose 11.1 percent from the end of the previous year to 5.6425 trillion won.
The three companies' combined order backlog totals about 37.4 trillion won, and the industry expects the figure to surpass 40 trillion won within the year if the current order momentum continues.
The order expansion drove a significant improvement in first-quarter results. LS Electric posted consolidated revenue of 1.3766 trillion won and operating profit of 126.6 billion won in the first quarter, up 33.4 percent and 45.0 percent year-on-year, respectively. After officially adding "data center business" to its corporate purpose in its articles of incorporation in March, the company already recorded 546.8 billion won in data center-related revenue last year. Hyosung Heavy Industries' heavy industry division also posted first-quarter revenue of 881 billion won and operating profit of 176.3 billion won, up 20.5 percent and 39.3 percent year-on-year, respectively. HD Hyundai Electric posted first-quarter revenue of 1.0365 trillion won and operating profit of 258.3 billion won, up 2.2 percent and 18.4 percent year-on-year, respectively.
Korean companies are also accelerating production capacity expansion to meet surging North American demand. LS Electric invested 100.8 billion won last year to complete its second production building in Busan, expanding ultra-high voltage transformer production capacity. Hyosung Heavy Industries' Memphis, Tennessee subsidiary, HICO America, is currently expanding both its testing facility and factory, with total investment reaching approximately $220.9 million. Including the amount invested since its acquisition in 2020, the cumulative investment totals $300 million, establishing the only system among Korean firms capable of designing and producing 765kV-class ultra-high voltage transformers locally in the United States. HD Hyundai Electric is investing $200 million in a second plant in Montgomery, Alabama, targeting completion in April next year. Including the expansion of its transformer plant in Ulsan and the construction of a new distribution campus in Cheongju, ongoing investments at home and abroad total 674.7 billion won.
