Korea’s automotive, power equipment companies thrive with growing U.S. exports

LS Electric Co. Cheongju Smart Factory [Courtesy of LS Electric]

Investors may want to keep an eye on Korean companies with increasing exports to the U.S. as the nation’s growing share of exports to the U.S. and decreasing share of exports to China following the reshuffling of the global supply chain, analysts say the stock correlation between Korea and China is likely to decline, while that between Korea and the U.S. is likely to increase.

The industries that have witnessed an increase in exports over the past three years include the automotive and power equipment sectors.

According to NH Investment & Securities Co. on Monday, Korea’s exports to China accounted for 19.6 percent of the nation’s total exports in the first five months of this year, down sharply from 27 percent in 2018. On the other hand, Korea‘s exports to the U.S. accounted for 18 percent, up from 12 percent in 2018. Exports to the U.S. have been steadily increasing since 2009 when the share stood at 10.4 percent, while exports to China have been declining since their peak in 2018.

Analysts attribute the growing share of exports to the U.S. to the mitigation of supply chain risks in the U.S. Following the global manufacturing disruptions mainly caused by the Chinese lockdown to prevent the spread of Covid-19 in 2021, the U.S. began to disperse manufacturing facilities around the world.

These developments have led to an increase in Korea’s exports of goods and intermediate goods to the U.S.

“Korea’s largest export destination may be the U.S. in the future, replacing China,” said Na Jeong-hwan, an analyst at NH Investment Securities. “Considering Korea’s high export value to China, the Chinese economy will continue to significantly impact the Kospi in the near future, but the correlation between the stock prices of Korea and China will decrease over time.”

Against such a background, analysts advise investors to pay attention to items that are seeing an increase in exports to the U.S. By product, automobile and power equipment parts exports stand out.

LS Electric Co. is one of those companies that has experienced a sharp increase in U.S. sales. According to industry sources, the company’s sales in North America in the first quarter rose to 36 percent of the total sales, compared to around 3 percent during the same period in 2020.

The Korean power equipment manufacturer has been recognized as a potential beneficiary amid the trend of increasing industrial manufacturing facilities in the U.S. Although the company’s stock price growth this year has been only at 49 percent due to their portfolio’s greater emphasis on domestic demand and low-voltage-oriented products, lagging behind the 74 percent growth of the industry’s second-ranked player, HD Hyundai Electric Co. However, analysts estimate that LS Electric’s performance in the U.S. market will inevitably improve.

“LS Electric does not have any production plants in North America, and its product focus is on low- and medium-voltage distribution systems rather than high-voltage transmission lines. However, the company has witnessed a significant increase in orders from North America since last year,” stated Sung Jong-hwa, an analyst at EBest Investment & Securities Co. “The company is believed to be traded at a discount of over 50 percent to its global competitors,” he added, commenting on the attractive valuation of the company.

Hyundai Motor Co. and Kia Corp. are companies that have seen an increase in their U.S. exports since 2020, just before the supply chain diversification began. According to Hyundai Motor Group, Hyundai Motor’s North American export share was 55 percent in the first quarter, up 6 percentage points from 49 percent during the same period in 2020.