[Weekend Money] "Do Not Doubt the Hyperscalers" LS ELECTRIC's Target Price Raised by 20%

"Do not doubt the hyperscalers."

This is the title of a recent report published by Mirae Asset Securities, which raised its target price for LS ELECTRIC by over 20%. Contrary to concerns, it is expected that hyperscalers will continue investing in artificial intelligence (AI) and data centers, suggesting that, in the current market rebound, LS ELECTRIC and the broader power equipment sector could once again emerge as leading stocks.

According to Mirae Asset Securities on July 26, the target price for LS ELECTRIC has been raised from 230,000 won to 280,000 won. The investment opinion remains 'Buy'. Considering that the closing price of LS ELECTRIC was 223,500 won on July 23, the day before the target price revision, this suggests a further upside potential of more than 25%.

This target price increase is based on adjusting the 2028 earnings per share (EPS) estimate from 6,428 won to 7,057 won. Analyst Kim Taehyung at Mirae Asset Securities, who authored the report, stated, "Taking into account the robust order momentum in the power distribution segment and the ramp-up potential at the Cheongju plant, we have raised the utilization rate outlook for the Cheongju facility." He added, "In the ultra-high-voltage transformer division, we factored in an expansion of average selling price (ASP) and profitability improvements, reflecting a mix shift from previously Korea-focused low-priced volumes to semiconductor and overseas high-yield projects."

LS ELECTRIC's recently disclosed second-quarter sales reached 1.577 trillion won, up 32.2% year-on-year. Operating profit for the same period also increased by 64.3% to 178.5 billion won. Both figures exceeded market consensus. New orders in the first half of the year totaled 3.2 trillion won, achieving 80% of the existing annual guidance (4 trillion won). As a result, the full-year order guidance has also been raised to 6 trillion to 6.5 trillion won, reflecting new customer amounts currently under negotiation.

Analyst Kim particularly highlighted the aggressive investment stance of hyperscalers. He noted, "The biggest current market concern is the possibility that hyperscalers could turn free cash flow negative due to increased AI investments, potentially leading to slowing data center investments. However, given this quarter's performance, such concerns appear unwarranted."

He continued, "Second-quarter new orders for power distribution panels, based on order backlog, are estimated at about 1 trillion won—the highest quarterly amount ever. In the second quarter alone, there were five publicly disclosed hyperscaler-related orders, with a total contract value of 800 billion won." He also analyzed, "Hyperscalers continue their aggressive investment stance to expand AI infrastructure. LS ELECTRIC is consistently engaged in negotiations to supply power equipment to major U.S. big tech companies, and mid- to long-term demand remains solid."

At present, he suggested that it is more important to focus on the valuation historically recognized by the market for LS ELECTRIC, rather than on absolute valuation figures. Analyst Kim emphasized, "With a stronger order backlog and improved earnings power compared to the previous quarter, we believe LS ELECTRIC now has a sufficient performance base to justify past market valuations. In a market rebound, the power equipment sector is likely to re-emerge as a leading sector, and LS ELECTRIC has the highest beta among power equipment companies."

This content was produced with the assistance of AI translation services.