Hyosung Group is steadily improving its performance thanks to the booming power equipment business of Hyosung Heavy Industries and the strong performance of Hyosung TNC's spandex business. The holding company Hyosung reported an operating profit of 81.8 billion won in the first quarter (January to March), marking a return to profitability due to the solid performance of its subsidiaries. Hyosung Chemical, which had been facing capital erosion, is viewed as having alleviated its urgent crisis through the sale of key assets.
According to the business community on the 12th, Hyosung Heavy Industries, a subsidiary of Hyosung Group in the institutional sector of heavy industry and construction, is experiencing rising performance due to increasing demand for power infrastructure in the United States. Hyosung Heavy Industries has seen significant growth in its heavy industry sector, recording the highest sales ever last year, and has achieved sales of 1.0761 trillion won in the first quarter, which is a 9.3% increase compared to the same period last year. The operating profit for the first quarter increased by 82.3% to 102.4 billion won, with an operating profit margin rising by 3.8 percentage points (P) to 9.5%. Hyosung Group Chairman Cho Hyun-joon has been participating in the board of directors of Hyosung Heavy Industries since this year to further strengthen its power equipment business.
Hyosung Heavy Industries is pushing for additional expansion of its ultra-high voltage transformer factory in Memphis, Tennessee. Following the acquisition of the Memphis factory in 2020, expansion of testing and production facilities has been underway since June of last year, and additional expansion is being considered. This is in response to the increased demand for power due to the construction of artificial intelligence (AI) data centers, new semiconductor and battery factories, and the replacement of aging power equipment in the United States. The Memphis plant is the only factory in the U.S. capable of producing 765 kilovolt (kV) ultra-high voltage transformers, with plans to increase production capacity to about 200 units per year.
Hyosung Heavy Industries' U.S. production subsidiary Hyosung HICO was selected in January as an eligible project for federal tax credits under the U.S. Inflation Reduction Act (IRA). It is expected to receive a federal tax credit of up to 30% of the eligible investment amount. Hyosung Heavy Industries is known to generate about 70% of its U.S. sales from the sale of local products, with the remainder being products produced and exported from the domestic Changwon plant.
A representative of Hyosung Heavy Industries said, "We are currently considering additional expansion of our U.S. plant to meet demand that exceeds our production capacity in the U.S."
Hyosung TNC, a textile and trade subsidiary, has seen an optimistic outlook for its performance this year due to the profitability improvement of its main product, the spandex business. Since 2010, Hyosung TNC has maintained a 30% share of the global spandex market. Despite struggling with performance for a while due to supply overcapacity and rising inventory in China, the operating profit margin for the spandex segment exceeded 10% in the first quarter.
The effects of operating new facilities that enhance efficiency have been reflected. Since February, Hyosung TNC has been operating expanded spandex facilities in the Ningxia region of China, with annual production capacity set to increase from 380,000 tons to 434,000 tons. Hyosung TNC has also reduced losses in its nylon and polyester businesses, which had been operating at a deficit, through restructuring. The company is diversifying its business portfolio by adding the specialty gas business acquired from Hyosung Chemical earlier this year, planning to more than double the range of specialty gas products, which are essential materials for semiconductor processes.
Hyosung Chemical is accelerating efforts to improve its financial structure. To escape complete capital erosion, it sold the profitable specialty gas business to its subsidiary Hyosung TNC for 920 billion won and has recently secured 310 billion won by using a 49% equity stake in its Vietnamese business subsidiary Hyosung Vinachem as collateral. The Onsan Tank Terminal division was also sold to Hyosung for 150 billion won. Currently, the sale of the optical film division is also in progress.
The prevailing outlook is that the improvement in the polypropylene business, which is a core operation, will take more time. Polypropylene accounts for more than half of total sales. Hyosung Chemical has recorded 13 consecutive quarters of operating losses in the polypropylene sector as it continues to struggle.