Focus on Power Equipment and Construction Stocks, Caution on Semiconductors and Shipbuilding

Sanil Electric recently announced a business plan to expand beyond its existing specialty transformer business into the general transformer market. This product diversification is expected to broaden the company's business scope, which was previously limited to specialty transformers, and increase expectations for revenue growth.

Researcher Lee Kwon-hee stated, "A new report on Sanil Electric also came out. It mentioned that they are now entering the ultra-high voltage transformer market. So, with the announcement of their business plan to not only do specialty transformers but also general transformers, there are expectations that their product range will expand." This is considered a positive factor for evaluating the company's growth potential.

There were mentions that US ESS (Energy Storage System) demand could quadruple, exceeding previous forecasts of a twofold increase. However, researcher Lee Kwon-hee stated, "It has probably been updated recently. I haven't seen it, but ESS demand is rapidly increasing faster than expected," indicating that he has not yet confirmed the latest update on this forecast. The ESS market is growing at a faster pace than currently anticipated, requiring continuous attention to related trends.

The issue of Battery Backup Units (BBU) in data centers has emerged, but it should be viewed as a thematic issue, according to analysis. Researcher Kim Jang-yeol pointed out that the BBU market is significantly smaller than the ESS or EV (Electric Vehicle) markets, cautioning against interpreting them on the same level.

He emphasized, "It's good, but the BBU market for battery backup systems is much smaller than ESS or EV electric vehicles. So this is a thematic issue. I want to emphasize that distinction is needed. That is, the battery and UPS and battery backup are different." He added that investors need to accurately understand the nature of the BBU issue when investing.

Samsung SDI announced plans to terminate its joint venture agreement with GM and use funds from the sale of its display business to secure an additional 27GW of production capacity. Researcher Lee Kwon-hee stated, "Samsung SDI recently terminated the JV contract with GM and, after returning the money from the sale of the display business, plans to increase production by an additional 27GW with those funds." This move is interpreted as Samsung SDI strengthening its independent production strategy and expanding its in-house capabilities. The termination of this contract suggests that Samsung SDI is restructuring its collaboration with global automakers and focusing on expanding its independent battery production capacity. This strategy aims to enhance its competitiveness in the future battery market.

The shipbuilding sector currently lacks significant momentum for stock price increases due to delays in issues related to US investment. Researcher Lee Kwon-hee explained the current situation, stating, "There was nothing special about shipbuilding. However, it's a continuous waiting game for issues related to US investment. But since that momentum hasn't been confirmed yet, it seems unable to go up." Although news related to US investment continues to be mentioned, the lack of substantial progress means that market expectations are not reflected in stock prices.

Currently, despite expectations of improved performance, shipbuilding stocks are experiencing sideways movement. Adding to this, the recent decline in the exchange rate creates an unfavorable environment for shipbuilding stocks, which have a high export ratio. Lee Kwon-hee added, "So the feeling is that once that momentum comes, it will surge like our transformers, but it just hasn't been its turn yet." He concluded that while the potential for an increase is high once momentum is confirmed, patience is still required for now.

The market reacted with disappointment rather than excitement to Hyundai Motor's announcement of an 800 billion won share buyback cancellation. The cancellation size, which is less than 1% of its market capitalization, and the fact that it was merely a cancellation without a prior buyback, failed to impress investors. Researcher Lee Kwon-hee cautioned against comparing Hyundai Motor's share buyback cancellation size to other large IT companies.

Researcher Lee Kwon-hee said, "Hyundai Motor is a very large company, a huge company in Korea, but some people keep comparing it to Hynix. You need to know this: some investors don't seem to know Hynix's market capitalization, which is 1,265 trillion won. Hyundai Motor is 81.6 trillion won, a mere 'kid.' We should be happy that the kid is cancelling 800 billion won." He emphasized the difference in market capitalization between Hynix (1,265 trillion won) and Hyundai Motor (81.6 trillion won). While a 800 billion won cancellation is positive considering Hyundai Motor's size, comparing it solely based on absolute scale to other companies is not appropriate, he argued.

Share buyback cancellation can be a positive signal as part of shareholder return policies, but this case shows that the reaction can vary depending on its size, method, and market expectations. Especially for Hyundai Motor, where market demand for continuous shareholder return policies is growing, additional efforts are generally believed to be needed in the future.

A shift in market funds from shipbuilding stocks to the power equipment sector has been observed. Researcher Yoo Chang-ki advised, "If funds are flowing into the power equipment sector first, then you also need to look at power equipment first. I think there's a need to follow the market to some extent. That means you shouldn't be stubborn." He emphasized the need for investors to adjust their portfolios according to market trends.

Specifically, for investors with a high allocation to shipbuilding stocks, it was suggested that strategic action is needed to monitor the shift of funds to the power equipment sector and adjust their weighting accordingly. It is crucial to adapt flexibly to market changes.

Researcher Yoo Chang-ki revealed that he has reduced his ETF (Exchange Traded Fund) holdings by about half. He explained that this is not due to market instability, but rather because the likelihood of a transition to a sector-specific market appears high. He stated, "What's very characteristic today is that I significantly reduced my ETFs. I cut about half of the ETFs I held. This means that I'm not raising cash due to market instability, but rather that the possibility of entering a sector-specific market seems high." This suggests a proactive strategy to respond to market changes.

Based on the judgment that further decline in the index is unlikely and some rebound has already been secured, the analysis is that the movement of individual stocks will become more important than the overall market trend. Therefore, it can be confirmed that he is shifting from overall market investment through ETFs to a strategy focusing on individual stocks with growth potential. This change appears to be in preparation for a market environment where certain sectors or stocks may show strong performance.

A cautious view was raised that Nvidia's positive news should be considered a 'best case' already fully reflected in the market. Researcher Yoo Chang-ki stated, "If the US market closes tomorrow and Nvidia hasn't gone up much, or if it finishes weaker after a strong start, then you might need to be careful about semiconductors tomorrow," cautioning against future semiconductor investments.

This reflects concerns that if Nvidia's earnings announcement or stock movement falls short of expectations, or if it shows early strength but weakens later in the day, investment sentiment across the semiconductor sector could be dampened. Therefore, investors need to carefully observe the US market's reaction before formulating a response strategy for semiconductor-related stocks.

Given that much of the optimism has already been priced in, a conservative approach may be necessary, considering that additional upside potential could be limited.

Researcher Yoo Chang-ki stated that he has shifted from a conservative to a positive view on the power equipment sector. He said, "I was very conservative about power equipment. But since last week, I've changed my opinion on power equipment."

This change is analyzed to be due to the confirmation of positive factors such as increased power demand from data centers and the easing of power equipment supply and demand issues. The power equipment sector continues to secure growth drivers and attract market attention.

The necessity for a reassessment of construction stocks has been raised. Researcher Yoo Chang-ki stated, "For construction stocks, I've prepared materials today, so you can listen," explaining that there is a need to pay attention to momentum related to nuclear power plants and data centers.

The construction sector has historically been undervalued due to the perception of it being domestic-focused, but its relative undervaluation appeal is now emerging with a PBR (Price-to-Book Ratio) of around 1.2x. Particularly, the construction of nuclear power plants, overseas plant orders, and the explosively increasing demand for data center construction are expected to provide new growth drivers for construction stocks.

These external environmental changes suggest that the construction industry is not merely dependent on the domestic housing market but can expand its business areas through high-value-added projects and new growth engines. Therefore, the argument for approaching construction stocks from a new perspective, beyond traditional valuations, is gaining traction.

Controversy has arisen over Apple allegedly demanding unilateral price reductions from subcontractors and threatening them with software usage bans. Researcher Kim Jang-yeol cited an example: "Then suddenly the CAO appeared and said, 'This seems like a lot, how about a 20% cut?' They said, 'We agreed not to do that. We already promised the department head.' Then he said, 'If we prohibit you from using our software, will the price remain the same?' And they were forced to sign immediately." This is criticized as Apple's unfair practices leveraging its market dominance.

Furthermore, market concerns are spreading that Apple is lobbying for the use of Chinese components in its China versions and providing technology information of existing partners to less technologically advanced companies. These controversies raise important questions not only about Apple's corporate ethics but also about protecting subcontractors' technology and creating a fair trading environment.

Despite SK Hynix's 1 trillion won and Samsung Electronics' 450 billion won share buybacks, stock price increases have been limited. Researcher Kim Jang-yeol explained, "Considering the share buybacks, it's true that they haven't risen much. Share buybacks play a bigger role when stock prices fall and also when they rise, but it's hard to say that stock prices will keep rising solely because of them." He concluded that the effect of share buybacks is unlikely to reverse overall market trends.

The main reason for the difficult stock price rebound is attributed to large-scale selling by foreign investors. Kim added, "Foreigners are selling 1.5 trillion won as soon as the market opens, so they can't overcome that speed." In other words, foreign selling pressure is overwhelming the stock price defense effect of share buybacks, acting as an impediment to stock price increases.

Expectations are rising for SK Hynix's stock price to rebound in September. Overcoming the 1.8 million won resistance level is analyzed as a critical turning point that will determine the future direction of the stock price. While KOSPI and Samsung Electronics have already recovered their mid-July declines, SK Hynix has not yet reached that level.

Researcher Kim Jang-yeol projected, "If Hynix is the next in line, it could potentially be a turning point in September to raise the upper bound for a rebound to around 1.85 million won or even 2 million won." He expects SK Hynix to rebound to around 1.85 million won or even 2 million won in September.

This forecast is based on expectations of an improvement in the semiconductor industry and the possibility of a catching-up rebound for SK Hynix, which has lagged relatively. However, how strongly it breaks through the technical resistance of 1.8 million won is important, and attention is focused on whether it can secure additional upward momentum through this.

An analysis suggests that former President Trump's strategy to counter China could positively impact the ESS (Energy Storage System) industry. Researcher Lee Kwon-hee stated, "Today was relatively good news. The ESS sector reacted strongly because China has a very high market share, and these measures aim to curb even that." He explained that efforts to check China's high market share could create opportunities for domestic ESS companies.

As a result, ESS-related value chain companies like Samsung SDI and power equipment companies showed technical rebounds. Within the secondary battery and transformer sectors, a process of distinguishing promising companies is underway, with increasing interest in companies benefiting from policy and possessing strong technology.

According to a Daily Economic report, the government denied rumors of an equity investment in Westinghouse, while a high-ranking official at Korea Electric Power Corporation (KEPCO) confirmed that discussions are underway. Researcher Lee Kwon-hee stated, "News came out that the government denied it, but a high-ranking KEPCO official confirmed that discussions are ongoing. What I want to say is not that we should buy nuclear power plants now, but that the timing was good." He emphasized the importance of timing in nuclear power investments.

This discrepancy in information could cause market confusion, but overall interest in the nuclear power industry remains high. Investors are advised to proceed cautiously, monitoring official announcements from the government and public corporations.

Given the current market's rotation trend, portfolio diversification using construction and telecommunications stocks has been suggested. Researcher Lee Kwon-hee explained, "Construction stocks can have several side benefits, such as expectations for nuclear power, real estate redevelopment and reconstruction policies, and even data centers. Construction stocks have multiple reasons for optimism." He highlighted that construction stocks share expectations across various areas like nuclear power, redevelopment, and data center construction.

Specifically, major construction stocks like GS E&C, Daewoo E&C, and Hyundai E&C are considered viable targets during corrections and require a long-term perspective. Among telecommunications stocks, SK Telecom is noteworthy for its stable core business combined with expectations from its investment in Anthropic. This diversification strategy is expected to help achieve stable returns in a volatile market environment.

At the Jackson Hole meeting, the view was presented that policy coordination with the Treasury Department could have a greater impact on the market than the Fed chair's policy direction. Researcher Lee Kwon-hee analyzed, "The market is likely to be more influenced by the Treasury's fiscal policy than the Fed. It's highly probable that they will emphasize policy coordination with the Treasury Department."

This suggests that Chairman Kevin Warsh's speech could aim to temper market expectations, and that harmony with government fiscal policy might be emphasized more than the Fed's independence. Therefore, when interpreting the results of the Jackson Hole meeting, investors need to pay attention not only to the Fed's monetary policy stance but also to changes in the Treasury's fiscal policy direction. The ripple effect on the market could be significant if policy coordination strengthens.

Nvidia's recent earnings were robust, with no apparent weaknesses. Researcher Lee Kwon-hee assessed, "This time, it was difficult to find any weaknesses in Nvidia's earnings announcement. Data center revenue was solid, their core business performed well, and expectations for future earnings were also good." He positively noted the solid data center revenue despite a 15% increase in product prices.

Contrary to some concerns about Nvidia's weakening monopoly, the expansion of the AI semiconductor market continues, with increasing demand for Google TPUs (Tensor Processing Units). This is expected to provide opportunities for memory semiconductor companies like Samsung Electronics and SK Hynix to diversify their customer base and explore new growth opportunities.

Nvidia's strong performance confirms the rapid growth of the AI market and is expected to positively impact the entire AI semiconductor ecosystem. In particular, increased demand for high-bandwidth memory (HBM) and other high-value memory products is raising expectations for improved earnings among domestic semiconductor companies.

Researcher Lee Jong-bum maintained a positive long-term outlook for the semiconductor industry, stating that current concerns are excessive. He said, "It's unlikely to continue. So, honestly, I'm not worried about semiconductors at all," diagnosing the current situation as merely an adjustment phase due to undue concern.

While geopolitical risks such as tariff pressure are raised if former President Trump is elected, he believes the focus should be more on the semiconductor fundamentals themselves. With predictions that hyperscale companies' demand will materialize next year in the semiconductor cycle, the current stock price decline can be interpreted as a temporary phenomenon.

It has been confirmed that the completion dates for major South Korean companies' factories in the US, including Samsung Electronics, are being delayed more than expected. Researcher Lee Jong-bum stated, "Even for Samsung Electronics, the factory currently under construction is much further behind than I know. So, the construction is continuously being delayed in terms of actually installing equipment and components to begin production, even though the exterior might be complete." He explained that delays in the procurement and installation of production line equipment and components are the main reasons.

This suggests that although the factories have their external structure, difficulties are being encountered in sourcing and installing critical equipment and components needed for actual production. These delays are not merely construction timeline issues but are likely a result of complex global supply chains, challenges in local infrastructure development, and labor shortages.

Researcher Lee Jong-bum pointed out that unreasonable early completion due to political pressure could lead to inefficient outcomes. Therefore, he emphasized the importance of considering realistic completion dates and establishing a stable production system from a long-term perspective. While these delays may affect short-term investment plans, they can be seen as a necessary process for ensuring long-term production efficiency and stability.

In the secondary battery market, there is a possibility of a shift in demand from short covering to purchasing driven by downstream industries (automakers), leading to speculation about a market bottom. Researcher Lee Jong-bum stated, "Secondary batteries might be bottoming out. For Samsung SDI or LG Energy Solution, this isn't about typical short covering that lasts only a day or two; if buying comes in now, it could be genuine, long-term buying." He focused on the possibility of long-term purchases by automakers.

Currently, the demand movements of secondary battery material companies and downstream battery cell manufacturers are diverging. This reflects a correction in the over-inflated stock prices of material companies and increasing interest in downstream industries where actual demand is occurring.

Furthermore, policy benefits related to ESS (Energy Storage Systems) and humanoids are also cited as positive factors for the secondary battery sector. The growth of the ESS market, in particular, is expected to provide new growth momentum for battery cell manufacturers. This change in the supply-demand structure suggests that the secondary battery market is entering a phase of pursuing long-term growth based on more robust fundamentals.

The criteria for selecting stocks within the power equipment sector are shifting from momentum in the first half of the year to performance and price attractiveness in the second half. Researcher Lee Jong-bum advised, "Last year, LS Electric was favored, but this year, Hyosung Heavy Industries might be more advantageous. If last year was based on Hyundai Electric and LS, this year it might be more beneficial to mix Hyundai Electric and Hyosung Heavy Industries." He recommended a diversified strategy rather than focusing on a single stock.

In the past, strong growth momentum of specific companies drove stock prices, but now fundamentals and undervaluation are key factors attracting foreign investment. As price burdens increase among individual stocks amid the overall upward trend of the sector, a stock rotation strategy is deemed necessary.

Therefore, investors need to identify undervalued companies with respect to their performance within the power equipment sector and flexibly adjust their portfolios to respond to market changes. This approach aims to enhance investment efficiency by closely evaluating the value and growth potential of individual companies, rather than merely following the overall sector trend.