Asian Power Equipment Sector Offers Attractive Entry Point After 20-30% Correction

Overview

This report addresses the investment value of the Asian power equipment sector following a significant 20-30% correction in Q2 2026. J.P. Morgan asserts that this downturn was primarily driven by market concerns over slowing data center capacity growth, heightened geopolitical tensions, and a lack of near-term catalysts after record-breaking orders in Q1, rather than deteriorating fundamentals. The report concludes that post-correction, sector valuations have become more attractive, particularly for high-quality companies with robust business structures and depressed valuations, where the current pullback presents a prime buying opportunity.

Core views

Regarding the drivers behind this correction, the report identifies three core factors. First, concerns over data center interconnection delays: investors fear that permitting bottlenecks and power constraints may lead to below-consensus data center capacity growth next year, subsequently dragging down order growth for behind-the-meter generation equipment. Second, unique trading dynamics in the Korean market: despite strong new orders in Q1, Korean power equipment stocks fell approximately 25%. This was attributed to previously excessive valuations (e.g., forward P/E of ~35x for HD Hyundai Electric and Hyosung Heavy at peaks), rising short interest (some hedge funds may be using these names as funding sources for long positions in memory chips), and a lack of high-frequency data catalysts between quarters. Finally, geopolitical pressure on Chinese companies: markets worry the EU may follow the auto industry's lead in imposing tariffs on Chinese power equipment, compounded by fund rotation away from the AI sector, which suppressed stock performance. In response to these concerns, the report offers clear rebuttals and fundamental assessments. On geopolitical risks, the report deems the probability of EU tariffs low because China's market share in the EU is under 10%, and exports are primarily primary electrical equipment with limited threat to local players like Siemens Energy; furthermore, Europe's urgent need for energy transition coupled with insufficient domestic capacity suggests continued procurement of Chinese products. Regarding the impact of data center interconnection delays, the report notes that Korean heavy-power-equipment firms (such as HD Hyundai Electric and Hyosung Heavy) are least affected, as orders related to data centers represent less than 10% of their portfolios, while over 90% stem from US utility and grid clients whose capital expenditures feature structural growth characteristics, implying order growth should remain intact. On specific stock selection, the report emphasizes cost-effectiveness post-valuation regression. Hyosung Heavy Industries is highlighted as the most attractively valued peer in Korea, trading at a ~20x 2028 expected P/E with high US grid exposure providing strong defensive qualities. For the Chinese market, Wasion Holdings is identified as a high-quality representative, currently trading at roughly 10x one-year forward P/E while maintaining earnings growth above 20% annually, offering significant valuation safety margins post-correction.

Analysis framework

The report employs an "Emotion Attribution + Fundamental Validation + Valuation Anchoring" framework. First, it decomposes stock price declines into sentiment-driven factors (shorting, geopolitical fears) and fundamental factors (orders, interconnections), disproving overly pessimistic fundamental assumptions via order structure and market share data. Second, it utilizes cross-region and cross-period valuation comparisons (e.g., horizontal peer comparison in Korea, historical vertical analysis) to assess whether current prices fully reflect risks. Finally, through business structure segmentation (data centers vs. grids/utilities), it identifies sub-sectors least impacted by short-term noise and possessing the strongest long-term structural logic, thereby uncovering mispriced opportunities amidst market panic.

Methodology notes

• Valuation MethodologyPE/PEG valuation

  Alignment of Forward P/E and Earnings Growth Rate

  The report uses 2028 expected Forward P/E to evaluate Hyosung Heavy Industries, matching it against Wasion Holdings' earnings growth (>20%) and 10x forward P/E. This approach evaluates not just static valuation levels but also the price-performance ratio relative to future growth, serving as a core metric to determine if growth-oriented manufacturing is undervalued.

• Industry/Industrial Analysis FrameworkSupply-demand framework

  Downstream Demand Structure Segmentation and Independence Analysis

  The report segments downstream power equipment demand into "Data Centers" and "Utilities/Grid," quantifying respective order shares (e.g., <10% vs. >90%). By analyzing the independence of drive factors across different demand ends, it determines the actual impact of specific headwinds (like data center delays) on overall corporate fundamentals, preventing localized risks from being generalized as systemic risks.

• Event Arbitrage and Behavioral FinanceCapital Flow/Chip Analysis

  Short Interest and Cross-Sector Hedging Trade Identification

  The report observes rising short interest in the Korean power equipment sector and speculates this acts as a counterparty to leveraged long positions in US tech/memory sectors. This analysis transcends traditional fundamentals, explaining the divergence between "strong earnings but falling stock prices" from a market microstructure and capital game perspective, aiding investors in distinguishing between fundamental deterioration and liquidity-driven declines.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• Hyosung Heavy Industries (298040.KS)

  The Korean power equipment name with the most attractive valuation and immune business structure regarding data center risks

  Strengths

  2028 expected P/E is approximately 20x, the lowest among Korean peers; over 90% of new orders come from US utilities and grids, benefiting from structural capex growth.

  Comparison

  Lower valuation and less affected by data center interconnection issues compared to HD Hyundai Electric and LS Electric.

  Risks

  Persistent short-selling pressure in the Korean market; USD exchange rate fluctuations impacting overseas order revenues.

• Wasion Holdings (3393.HK)

  A premium Chinese power equipment exporter where valuation and growth align well post-correction

  Strengths

  Trades at roughly 10x one-year forward P/E with annual earnings growth exceeding 20%; ample valuation safety margin.

  Comparison

  Compared to other Chinese peers, its small market share in the EU reduces tariff risk exposure.

  Risks

  Unexpected tightening of EU trade policies; continued AI sector fund absorption effects.

• HD Hyundai Electric (267260.KS)

  A leader in Korean heavy power equipment, also benefiting from US grid investment, but with slightly higher valuation than Hyosung.

  Strengths

  Low data center order share; US transmission capex provides structural support.

  Weaknesses

  Previously high valuation premium; concentrated short interest.

  Comparison

  Similar business structure to Hyosung Heavy but currently less attractive in terms of valuation.

  Risks

  Uncertain short-covering节奏; sequential order growth slowdown starting Q2 due to high base effect in Q1.

Key data

• Sector Correction Magnitude20-30%Maximum drawdown for Chinese and Korean power equipment companies from their April 2026 peaks
• Hyosung Heavy Industries 2028E P/E~20xLowest level among Korean power equipment peers
• Wasion Holdings Forward P/E~10xCorresponding to annual earnings growth exceeding 20%
• Chinese Products' Market Share in EU<10%Core basis for judging low risk of EU tariff imposition
• Korean Companies' Data Center Order Share<10%Indicates low sensitivity to data center interconnection delay issues
• Korean Companies' US Grid/Utility Order Share>90%Structural foundation supporting order growth resilience

Impact & implications

The report argues that the current market adjustment provides long-term investors with a window to acquire high-quality assets at reasonable prices. For Korean power equipment firms, provided the structural trend of US transmission infrastructure capex remains unchanged, short-term sentiment release and short selling pressures will not alter long-term value; for Chinese exporters, as long as they maintain a low market share in Europe and focus on hardware supply, the actual probability of trade barriers materializing is controllable. This implies investors should prioritize order structure and valuation alignment rather than being swayed by short-term macro narratives or cross-sector capital flows.

Risks

• Significant delays in data center interconnection permit approvals leading to capacity growth substantially below consensus next year.
• Shift in EU-China trade policy resulting in tariffs or non-tariff barriers on power equipment.
• Persistent or intensified short-selling pressure in the Korean market causing prolonged divergence between stock prices and fundamentals.
• Escalation of geopolitical tensions further suppressing valuations for Chinese exporters.
• Sequential slowdown in order growth rates starting in Q2 due to high base effects from Q1 orders.

What to watch

• Progress of data center project permitting approvals and updates to power interconnection timelines.
• EU trade investigations or policy statements regarding Chinese power equipment.
• Changes in short interest ratios in the Korean power equipment sector and their correlation with memory chip sector movements.
• US transmission infrastructure capital expenditure plans and tender award落实情况.
• Sequential order growth rates for each company's Q2 new orders and adjustments to full-year guidance.