DS Investment & Securities: "Tc Materials to Benefit from Transformer Supercycle and Capacity Expansion, with Operating Profit Set to Rise 72% Next Year"

[Financial News]  DS Investment & Securities said on the 2nd that Tc Materials is expected to take a major step forward in 2027, driven by expanded production capacity for Continuously Transposed Cable (CTC), a key transformer material. However, it did not provide an investment rating or target price.
Cho Dae-hyeong, a researcher at DS Investment & Securities, stated, "The effect of proactive CTC capacity expansion will be added to growing demand from the replacement of aging power grids and rising power density at data centers." He added, "Both top-line growth and improved profitability are expected in 2027."
Tc Materials processes copper to produce materials used in cables and transformers. Its customers include major domestic power-equipment and cable manufacturers such as HD Hyundai Electric, Hyosung Heavy Industries, Iljin Electric, and LS Cable & System.
DS Investment & Securities identified the expansion of CTC, a high-margin product, as the company’s key growth driver. CTC is a core material used in transformers ranging from medium- and low-voltage models to ultra-high-voltage units. The company plans to add eight CTC production lines to its existing five by October this year, bringing the total to 13. Monthly production is consequently expected to increase to 1,600 tons, more than three times the current level.
Cho analyzed, "In 2027, when the effects of the capacity expansion are fully reflected, production growth as well as an improved product mix is expected." He added, "In particular, as the proportion of large-capacity and ultra-high-voltage transformers increases, demand for high-value-added CTC will grow, making further margin improvement possible." 
The slowdown in profitability during the second quarter was viewed as temporary. Operating profit rose 164.2% year on year to 3.8 billion won, but the operating margin fell to 3.1% from 6.3% in the first quarter. This was attributed to differences in the timing of passing copper-price changes through to selling prices for each customer during a period of sharply rising costs.
Negotiations are currently proceeding under a pricing method based on the copper price for the month in which shipments are made. As a result, margins are expected to recover after reaching a low point in the second quarter.
Meanwhile, DS Investment & Securities forecast Tc Materials’ operating profit at 21.3 billion won this year, up 213.0% from the previous year, followed by another 72% increase to 36.7 billion won in 2027. Cho said, "Given the CTC capacity expansion and the increased share of high-value-added products, earnings growth is highly visible," adding that the company is "significantly undervalued within the sector."


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