Accelerating Business Expansion with Transformer and Hydrogen Charging Station Projects

Leading indicators serve as a basis for anticipating future economic trends. Leading indicators include machinery orders, bill exchanges, wholesale price indices, consumer expectations indices, and construction permits. For machinery and equipment companies, a leading indicator is the order backlog, and an increase in the order backlog from the previous period typically indicates improved future performance.

Hyosung Heavy Industries' order backlog increased by 11% from KRW 2.0717 trillion at the end of 2020 to KRW 2.3061 trillion at the end of 2021. By the end of 2022, it surged by 44% to KRW 3.3273 trillion compared to the previous year-end. Orders are fulfilled over 2-3 years, and the increased order backlog was significantly reflected in the 2023 revenue. As a result, Hyosung Heavy Industries' revenue in the heavy industries sector, including power equipment, increased significantly from KRW 1.9881 trillion in 2022 to KRW 2.5763 trillion, a 30% increase, in 2023.

Hyosung Heavy Industries' management performance: Balanced external and internal growth

Hyosung Heavy Industries' management performance is evident not only in external growth but also in internal strengthening. The consolidated operating profit of Hyosung Heavy Industries increased from KRW 120.1 billion in 2021 to KRW 143.2 billion in 2022, and further to KRW 257.8 billion in 2023. The operating profit growth rate was 19% in 2022, which surged to a remarkable 80% in 2023. The operating profit margin increased from 3.9% in 2021 to 4.1% in 2022 and further to 6% in 2023. Strong results drove the stock price sharply upward, from KRW 44,550 per share at the end of January 2022 to the KRW mid-300,000 range in April 2024, nearly a sevenfold increase.

Hyosung Heavy Industries comprises heavy industries, construction, and other sectors. The revenue composition as of 2023 was 60% heavy industries, 39% construction, and 1% others. With carbon reduction becoming a major agenda in global industries, efficient energy usage has become a crucial factor in corporate management. Riding this wave, the proportion of heavy industries within Hyosung's business is gradually increasing. In 2021, heavy industries accounted for 58%, driven by strong sales in key equipment for the power industry produced and sold by HYOSUNG, such as transformers, circuit breakers, industrial production facilities, electric motors, and gear reducers, among others. This trend is spearheading the expansion of heavy industry operations.

▲ In 2023, Hyosung Heavy Industries secured a contract to supply KRW 100 billion worth of ultra-high voltage transformers to a Norwegian transmission company.

Hyosung Heavy Industries' Power Performance Unit (PU), part of its power industry division, leverages the extensive expertise accumulated in the domestic market to expand into global markets such as Europe, the Americas, the Middle East, and Asia, where its quality and technological prowess are recognized. The Machinery PU manufactures electric motors used across various fields and supplies industrial power generation equipment, generators for ships, precision gears, and chemical devices for petrochemical plants.

In addition to its power industry division, Hyosung Heavy Industries operates in the construction sector, engaging in diverse construction projects both domestically and internationally. These projects include housing developments, redevelopment and reconstruction projects, commercial and office facilities, civil engineering and environmental projects, as well as social infrastructure projects.

Bright prospects in the global market expansion of Hyosung Heavy Industries

The growth trajectory of Hyosung Heavy Industries is led by its heavy industries sector, particularly in overseas markets. Exports in the heavy industries sector increased from KRW 565.4 billion in 2021 to KRW 664.8 billion in 2022, and further to KRW 1.1953 trillion in 2023, with a two-year average growth rate of 45.4%. Domestic sales in the heavy industries sector remained stable around KRW 1 trillion during this period. The heavy industries sector is successfully diversifying its export markets. The proportion of domestic sales in total sales decreased from 73% in 2022 to 68% in 2023, with Asia, North/Central America, and Europe taking up the share. During the same period, the proportion of sales in Asia increased from 12% to 15%, North/Central America from 8% to 10%, and Europe from 2% to 5%.

Hyosung HICO in Memphis, Tennessee, is gaining attention as a base for targeting the North American market. Hyosung HICO, which produces and sells ultra-high voltage transformers, saw its revenue increase to USD 114.78 million in 2023, about 2.5 times the previous year's USD 46.71 million. The company returned to profitability in the fourth quarter of 2023, with an annual profit expected in 2024. Hyosung Heavy Industries acquired this plant from Mitsubishi in 2019 for approximately KRW 50 billion. At that time, the power equipment market had long been stagnant. However, the situation changed in 2022 with the onset of the electric vehicle era, increasing demand for replacing aging power grids in the United States and a boom in the construction of renewable energy power plants. Demand for Hyosung HICO's transformers grew, revitalizing the previously deficit-ridden factory into a profitable entity.

The future outlook for Hyosung HICO is promising, as indicated by its order backlog. The backlog increased from USD 159.82 million at the end of 2021 to USD 217.58 million at the end of 2022 and surged to USD 334.01 million at the end of 2023. With the increasing demand for replacing aging power grids and building new ones in the United States and Europe, companies prepared like Hyosung Heavy Industries could seize opportunities. Hyosung Heavy Industries' technological and quality competitiveness in the Power PU has been proven through various opportunities over the years, including the development of Asia's first 765,000-volt ultra-high voltage transformer and an 800,000-volt ultra-high voltage circuit breaker. Leveraging this competitiveness, Hyosung Heavy Industries has increased its order volume with high margins in recent years, leading to an increase in operating profit margins.

Preparing for the Future with Hydrogen Charging Stations and Liquid Hydrogen

Hyosung Heavy Industries is not resting on its current upward trajectory but preparing for the future. In response to the automation of the power industry and the efficient construction of power grids, it is strengthening businesses such as IT-based asset management for power facilities and high-voltage direct current transmission systems. Additionally, to respond to the low-carbon and sustainability trend, the company is pursuing new businesses related to renewable energy and distributed power sources, centered around liquefied hydrogen plants and ESS (energy storage systems).

▲ Hydrogen engine generator in operation at Hyosung Heavy Industries' Yongyeon plant since April 2024. It is the world's first commercially operational 100% hydrogen fuel-powered generator.

Moreover, to build hydrogen mobility infrastructure, Hyosung Heavy Industries started its hydrogen charging station business in the 2000s and recently expanded its area with liquid hydrogen production. In the field of hydrogen charging stations, Hyosung Heavy Industries' strength lies in providing total solutions from materials to production, assembly, and construction. In the field of liquid hydrogen, it is building a value chain covering everything from production to transportation, charging facility installation, and operation in collaboration with Linde Group, a global chemical company specializing in industrial gases. Within Hyosung Chemical's Yongyeon plant site, a liquid hydrogen plant with a capacity of producing 13,000 tons, which can supply hydrogen for 100,000 passenger cars, is being constructed and expected to be operational by the end of the year. Moreover, last year, HYOSUNG signed a business agreement with the Seoul Energy Corporation to establish hydrogen charging infrastructure in Seoul.

The power equipment market, led by Hyosung Heavy Industries, is expected to continue its prosperity. The ongoing replacement of aging power grids, coupled with the expansion of renewable energy, is driving the demand for new power infrastructure worldwide. Additionally, the boom in the construction of AI data centers accounts for a significant portion of the demand for power grid construction, which is expected to continue in the future.

Hyosung Heavy Industries' order backlog at the end of 2023 reached KRW 3.7184 trillion, a 12% increase from the previous year-end. Securities firms commonly anticipate that as orders materialize and the upward trend continues, Hyosung Heavy Industries will maintain its solid growth trajectory. According to securities information analysis firm FnGuide, securities firms' consensus on Hyosung Heavy Industries' sales for this year is KRW 4.837 trillion, with a net profit of KRW 237.5 billion. The sales growth rate compared to last year is 12.5%, and the net profit growth rate is a remarkable 80%, indicating that Hyosung Heavy Industries' technological and quality competitiveness is translating into high-margin realization. With such robust growth, there will continue to be keen interest in Hyosung Heavy Industries' future performance.