Power infrastructure growth outlook
LS ELECTRIC is expected to strengthen its earnings growth as investment expands in power infrastructure for artificial intelligence (AI) data centers and advanced industries.
In a recent report, Daishin Securities said the company is expected to increase its market share rapidly through competitive delivery times and expanded production capacity, as orders for power distribution systems increase, particularly from US hyperscale data centers and on-site power generation equipment companies.
LS ELECTRIC has secured power distribution system packages needed for AI data centers as a major growth driver. Power distribution systems safely distribute electricity where it is needed and are essential to the stable operation of data centers and advanced industrial facilities. As demand for AI computing increases, data center electricity consumption and the burden of investment in power infrastructure are rising, increasing expectations that related equipment suppliers will benefit.
Daishin Securities assessed the power infrastructure sector as being in the early stages of a long-term growth phase. Although it lowered its price target, the brokerage said the adjustment reflected a more realistic 6-month target, while it expected favorable industry conditions and the pace of earnings growth to strengthen. Continued order growth and expansion into additional business areas could also justify the company's current high valuation.
The analysis found that switchboards typically account for 70% to 80% of LS ELECTRIC's power distribution system packages, with distribution transformers and other distribution equipment making up the remaining 20% to 30%. Its main customers are hyperscalers, the large US cloud and internet companies, and local on-site power generation equipment companies. Businesses expanding power supply facilities to meet data center electricity demand are becoming major customers.
Delivery times and production capacity
Delivery time is central to the company's competitiveness. LS ELECTRIC's supply lead time is within 12 months, shorter than the 2 to 3 years generally required in the United States for equipment tailored to hyperscale data center specifications. As power infrastructure supply affects data center construction schedules, the ability to deliver equipment relatively quickly could help the company win customers.
AI data centers cannot operate without stable power supply systems alongside servers and cooling equipment. Longer lead times for power infrastructure equipment can disrupt the overall data center construction schedule. In this environment, supply schedules, product reliability and the ability to meet design specifications become important supplier selection criteria alongside price.
In addition to its competitiveness in quality and delivery times, LS ELECTRIC is strengthening production capacity and supplier management capabilities. Daishin Securities analyzed these factors as a basis for winning additional major AI data center and advanced-industry customers. A broader customer base and product range could increase repeat orders from existing customers as well as new orders.
Rapid order growth could lead to further upgrades to earnings forecasts. However, the size of any upgrades will depend on the pace of customer orders, contract values and when revenue is actually recognized. Even with a growing order backlog, delivery times and profitability could come under pressure if capacity expansion and component procurement cannot keep pace. The results of capacity expansion and supply chain management are therefore expected to become important together.
On-site generation and direct current equipment
Expansion of the on-site generation market is also cited as a new growth opportunity. On-site generation produces electricity directly within or near the facility consuming it. Amid rapidly rising electricity demand from large data centers, constraints on grid connections and power supply conditions could increase demand for facilities' own generation equipment. More projects combining generation equipment and power distribution systems could expand business opportunities for related equipment suppliers.
Daishin Securities expects faster sales growth for 1,500 V direct current (DC) switchboards used in generation equipment supplied by fuel cell company Bloom Energy, as well as battery control panels (BCPs) and power conversion systems (PCSs) for energy storage systems (ESS). Fuel cells and ESS are equipment intended to improve power supply stability and efficiency, and demand for related equipment could increase as data center power infrastructure becomes more diversified.
Technology development in DC power distribution is another factor in medium- to long-term growth. LS ELECTRIC is reportedly collaborating with a leading global company on development related to its 800 V DC product range. For data centers with high electricity consumption, efficiency in power conversion and system configuration are becoming important issues. Expansion of DC-based power systems could create new market opportunities for companies that secure relevant products and technologies early.
Daishin Securities assessed LS ELECTRIC as trailing global competitors in the established alternating current power distribution market, but as having secured competitiveness as a leading supplier in the low-voltage direct current (LVDC) market, which has substantial growth potential. Combining its experience manufacturing power distribution systems in the established market with next-generation DC technology could allow it to expand its business scope. However, commercialization results may vary with the pace of the new technology market's growth, standardization and customer adoption.
From an investment perspective, it is important to verify whether order growth translates into actual increases in revenue and profit. Even if the data center power infrastructure market grows, continued capacity expansion by competitors and new market entrants could intensify price competition. Investment costs for expanding production capacity and supplier availability could also affect profitability. Whether customer diversification and an increasing share of high-value-added products proceed together will influence medium- to long-term corporate value.
Daishin Securities expects LS ELECTRIC to broaden its order base in AI data centers and advanced industries through competitive delivery times and quality, aggressive capacity expansion and supplier management capabilities. With growth drivers expanding to include switchboards for on-site generation, ESS-related equipment and LVDC products, earnings forecasts could rise further depending on the pace of orders and contract values.
Daishin Securities assigned LS ELECTRIC a price target of 250,000 won and a buy rating.
Original Korean article: Pinpoint News
English brief by Korea Wind Intelligence, koreawindintel.com
