Project progress and electricity supply
SGC Energy is securing a new source of growth by making tangible progress in its artificial intelligence data center (AIDC) business.
In a recent report, DS Investment & Securities said SGC Energy was moving quickly with its domestic AIDC business and would also establish a financial foundation for investing cash raised from selling its first project in its second project.
An AIDC is a data center equipped with high-performance servers and electricity and cooling facilities needed for artificial intelligence computing. As the spread of generative artificial intelligence drives a sharp increase in demand for large-scale computing, competition among companies to secure reliable electricity supply and data center operating capabilities is also intensifying.
SGC Energy has completed the contract for its first domestic AIDC project and is proceeding with its second project. The second project is being pursued with a target of starting operations in 2029. Electricity supply has already been secured for part of its capacity. Because securing electricity is a key requirement for developing and operating a data center, the receipt of electricity for part of the capacity is regarded as a positive factor in the project's progress.
Data centers require substantial amounts of electricity to run their servers. As artificial intelligence services expand, electricity consumption by high-performance semiconductors and servers also increases. An inadequate electricity supply can make normal operation difficult even after facilities have been built. Accordingly, AIDC projects require suitable electricity supply conditions as well as land and equipment.
With operations targeted for 2029, SGC Energy's second project can be seen as establishing a foundation for medium- to long-term growth. Having already secured electricity for part of its capacity represents progress on one of the important tasks in developing the project. However, further project progress needs to be confirmed before operations actually begin and revenue is generated.
Project sale and investment funding
The sale of the first project is another factor that could increase capacity for future investment. DS Investment & Securities expects SGC Energy to raise cash by selling the first project. Its analysis is that this could ease the financial burden of pursuing the second project.
Because large-scale data center projects require substantial initial investment, fundraising capacity is an important variable in business expansion. If funds secured from the first project can be used for a subsequent project, this could help reduce reliance on external financing and accelerate project development.
The business structure can be interpreted as a way of recovering funds through the first project and investing them in the second. If a structure for securing investment funds while pursuing projects in stages becomes established, there would also be greater scope to consider additional business opportunities.
DS Investment & Securities highlighted that SGC Energy was delivering results faster than any other company pursuing domestic AIDC projects. It pointed to concrete progress early in the business, including contracts, the pursuit of a subsequent project and the securing of electricity supply.
Valuation and investment outlook
In the stock market, a decline in valuations across the sector provided the background for the target price adjustment. Valuation refers to the level at which a company's shares are priced relative to its earnings, assets and other measures. Recent declines in investment metrics such as price-to-earnings ratios for the relevant sector, including SGC Energy, were reflected in the target price.
However, the investment recommendation was maintained despite the lower target price. Given progress in the AIDC business, the expected cash proceeds from selling the first project and the capacity to pursue the second, the medium- to long-term growth potential remains valid.
DS Investment & Securities expects SGC Energy's share price could rise relatively more when the market rebounds. Its faster delivery of results than other companies in the domestic AIDC business could provide grounds for a reassessment of the stock.
The AIDC business is linked to rising electricity demand accompanying growth in the artificial intelligence industry. SGC Energy is broadening its business base in the data center market while working to recover funds from its first project and prepare its second project for operation. Specific progress on the second project, the amount of electricity secured and cash inflows from the sale of the first project are expected to be key areas of investor interest.
DS Investment & Securities lowered its target price for SGC Energy to 67,000 won and maintained its buy recommendation.
Original Korean article: Pinpoint News
English brief by Korea Wind Intelligence, koreawindintel.com
