Hyosung Corporation • April 2026
Hyosung Corp is the listed holding company controlled by the Cho family, which traces its roots back to 1966, whilst the current holding company structure was established in 2018.
The company is in many ways, idiomatic of what we see in Korea: attractive quality underlying assets with strong earnings growth prospects; a muddied governance track record; exceptionally wide discounts; and the prospects for improvement as the winds of governance reform blow.
Starting with the NAV, the key asset is a 32.5% listed stake in Hyosung Heavy (“HSHI”) which accounts for 90% of NAV and 310% of Hyosung Corp’s market cap.
HSHI is the global leader in high-voltage electrical equipment, most importantly, large power transformers (“LPTs”) and gas-insulated switchgear (“GIS”), as well as operating a less attractive residential construction business.
Electricity is one of those things that most people spend very little time thinking about but expect – without fault – to “just work”. The components that enable this are relatively complex and this is where HSHI specialises. In layman’s terms LPTs are large power transformers that step-up and step-down voltage at generation and different parts of the grid, allowing for long distance transmission or local distribution, maintaining safety and efficiency, particularly with regard to renewable energy generation which often enters the grid at fluctuating voltages. GIS on the other hand sit at the substation level, using pressurised gas to insulate and interrupt electrical currents, safely switching and isolating parts of the grid to ensure effective running.
These are mission‑critical, custom‑engineered pieces of equipment with long lead times. The high technical complexity requires specialised labour, and the finished product has stringent reliability requirements / customer qualification periods. As a result, barriers to entry are high and supply is tightly constrained in an oligopolistic market.
Against tight supply, we are undergoing a cyclical upswing in demand, most notably in the US where c.70% of grid transmission lines are over 25 years old and approaching the end of their operational lifespan and where HSHI benefit from local manufacturing. Replacement demand is supplemented by transmission investment, renewable connections and power demand linked to data centres, with US electricity consumption expected to grow by c.20% through to 2030, having been roughly flat for the past decade. The electrification of industries, on-shoring, AI, and electric vehicle are all positive secular tailwinds, and we see similar evolving dynamics in Europe, which is the second leg of the growth outlook.
EBIT margins have expanded from c.6% in 2022 to c.16% currently and will move well into the low-to-mid-twenties in the years ahead. Capacity constraints are pushing prices up as customers jostle for equipment, and the business continues to benefit from the mix shift toward higher margin US and EU markets. Results released in April were supportive of the path ahead. New orders more than doubled year-on-year and quarter-on-quarter to KRW 4.2tn, including KRW 3.2tn from North America, while backlog rose to roughly KRW 15tn – equivalent to c.2.5x annual revenues. All told revenues are expected to grow 12% per annum out to 2028, while more importantly operating income is expected to compound at 26% per year as high margin US orders from the secured backlog hit the P&L.
The shares have risen +120% this calendar year, however at c.20x 2028 operating profit, do not seem excessively valued especially given the visibility of earnings through their backlog and the continued strong growth we see in the years ahead. Despite this phenomenal performance, the company is still trading at a c.10% discount to global peers on a multiple’s basis, while EV/Backlog discount is even starker with HSHI trading at c. 1.6x against the same peer set trading over 4x.
Returning to Hyosung Corporation, a word of caution on governance is required – which is worlds away from the likes of the Wallenberg’s, Agnelli’s or Arnault’s with whom we typically seek to align capital. We believe there is much that can be done to improve governance at the board level, with minority shareholders having been largely forgotten. We are also of the view that capital allocation for the unlisted assets can also be improved by focussing capital on high margin, high ROIC businesses such as Hyosung TNC (7% of NAV), one of the world’s leading global ATM businesses, as opposed to some of the other small unlisted assets which do not exhibit these traits.
In light of the changing governance environment in Korea, such failings are becoming more costly and difficult to defend – as represented by the 70% discount at which the shares trade. We expect such companies to come under increasing pressure and attention. From such wide levels, we believe returns from any discount changes to be quite asymmetric with even incremental changes having the potential to significantly move the needle.
To date we have more than doubled our money in Hyosung Corp in just nine months. Whilst we don’t expect the IRR to stay at such a level, the combination of attractive NAV growth prospects and an exceptionally wide discount bode well for future returns.
