HD Hyundai Electric Co., Ltd.'s margins slide amid exchange-rate effects and slower orders... “Most of the bad news is out for LG Innotek”

[Financial News] On the morning of October 28, we bring you a roundup of reports from major securities firms.
HD Hyundai Electric Co., Ltd. posted record third-quarter revenue, but its margins fell due to the stronger won and a decline in orders. Analysts expect its order momentum to recover if new supply contracts with Big Tech companies are finalized.
LG Innotek's third-quarter operating profit fell well short of expectations due to exchange-rate effects, and its weakness is expected to continue into the fourth quarter. Analysts say that, with most of the bad news now out, it will be time to consider where the stock may bottom once downward revisions to market expectations are complete.
Celltrion was praised for beating market expectations for the third straight quarter, supported by new biosimilars such as Omlyclo and contract manufacturing volumes.
◆ HD Hyundai Electric Co., Ltd. (267260)― Shinhan Investment & Securities / Research Fellow Lee Dong-heon
- Target price: KRW 850,000 (cut 15.0%, from KRW 1,000,000) | Previous day's closing price: KRW 450,000
- Rating: Buy (maintained)
Shinhan Investment & Securities lowered its target price for HD Hyundai Electric Co., Ltd. to KRW 850,000, saying that although the company posted record third-quarter revenue, its margins fell due to the stronger won and a decline in orders. The company's third-quarter operating profit was KRW 284.5 billion, 7% below market expectations.
Research Fellow Lee Dong-heon said, “The stock has fallen 69% from its 52-week high amid concerns that data-center investment has peaked, a stronger won, and a decline in third-quarter orders (USD 980 million, down 19% year over year).” Explaining the target-price cut, he said, “We lowered our margin estimates by 1 percentage point to reflect the stronger won and lower orders, and reduced the premium until additional contracts with Big Tech companies are confirmed.”
However, analysts say order momentum could recover. Lee said, “We expect order momentum to recover if new supply contracts with Big Tech companies B, C and D are finalized.” The contracts are expected to be finalized by the end of November.
The company also expects its new transformer plant in Ulsan to begin full-scale production in November and distribution-transformer sales to more than double in 2027. The risks cited included a stronger won and contract delays.※ Distribution transformerA transformer at the final stage of power supply, it lowers electricity received from the transmission grid to the voltage used by end users. The report relayed the company's forecast that a project for Big Tech Company A would drive distribution-transformer sales to more than double in 2027.
◆ LG Innotek (011070)― SK Securities / Researcher Park Hyung-woo
Target price: KRW 600,000 (cut 40.0%, from KRW 1,000,000) | Previous day's closing price: KRW 374,500
Rating: Buy (maintained)
SK Securities lowered its target price for LG Innotek to KRW 600,000, saying its third-quarter operating profit of KRW 94.8 billion fell well short of the market expectation of KRW 300 billion three months earlier.
Researcher Park Hyung-woo said, “Most of the weakness was due to exchange-rate effects,” and analyzed that “a gap of about KRW 200 billion in earnings arose as the won turned stronger than assumed in the original exchange-rate estimates.” On the business itself, he noted that “shipment volumes and selling prices were stable,” adding, “There are no issues with optical-component shipment volumes or price cuts, and market-share positions against competitors in Greater China are also stable.”
Fourth-quarter operating profit is also forecast at KRW 184.9 billion, well below the market expectation of KRW 390 billion, making a downward reset of expectations inevitable. SK Securities' value-chain review detected order-cut moves at multiple companies, leaving customer inventory adjustments as a remaining variable.
Even so, Park said, “Most of the bad news is out,” adding, “Once the inventory-adjustment factor is reflected and consensus estimates have finished moving down, it will be time to consider where the bottom is.” He also said, “Camera technology will continue to advance in the future,” and suggested that component upgrades and a higher adoption rate in 2027 would push up supply prices.※ Order cutAn order cut is a reduction in the volume of orders that a finished-goods maker has placed with a component supplier. It is an early signal of weakening demand for finished products such as smartphones and directly affects component makers' sales and capacity utilization.
◆ Celltrion (068270)― Hyundai Motor Securities / Researcher Kim Hyun-seok
- Target price: KRW 300,000 (raised 7.1%, from KRW 280,000) | Previous day's closing price: KRW 188,600
- Rating: Buy (maintained)
Hyundai Motor Securities raised its target price for Celltrion to KRW 300,000, saying the company had beaten market expectations for the third straight quarter. Celltrion's third-quarter revenue rose 53% year over year to KRW 1.5755 trillion, while operating profit increased 74% to KRW 525.3 billion. Growth was driven by new product lines and contract manufacturing (CMO) volumes for U.S.-based Eli Lilly and Company.
Hyundai Motor Securities researcher Kim Hyun-seok said, “Growth in new product lines and increased CMO volumes for Eli Lilly and Company drove revenue growth while market shares for existing products remained solid,” adding, “Structural growth led by new products will continue.”
New products accounted for as much as 67% of biosimilar sales. Omlyclo, which generated KRW 132.1 billion in sales in Europe alone, is “expected to grow sharply again with its launch in the U.S. market in the fourth quarter,” he forecast. However, third-quarter net income fell short of market expectations as foreign-exchange losses from translating foreign-currency receivables into won amid the decline in exchange rates were recorded as non-operating losses.※ OmlycloDeveloped by Celltrion, Omlyclo is a treatment for allergic diseases and a biosimilar of Novartis's Xolair (active ingredient: omalizumab), which is used for chronic urticaria and asthma, among other conditions. It was launched in the U.S. on the 5th and was the first Xolair biosimilar to enter the U.S. market.※ Contract manufacturing (CMO, Contract Manufacturing Organization)This is a business in which a company manufactures pharmaceuticals on behalf of a pharmaceutical company that commissions the work. The report cited increased CMO volumes for Eli Lilly and Company, along with growth in new products, as factors behind third-quarter revenue growth.※ Pharmacy Benefit Manager (PBM)In the U.S., a PBM is an intermediary that negotiates with pharmaceutical companies on behalf of insurers over whether drugs will be covered and at what price. If a drug is listed as preferred on a PBM formulary, it is prescribed ahead of competing products, making PBMs a factor considered decisive for biosimilar sales in the U.S.

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