3Q26 Earnings: Mix Weighs on Margins; Growth Outlook Intact

Record revenue, but less favorable sales mix weighed on margins. We remain constructive on HDHE, as the sequential margin decline appears more reflective of sales mix than weakening North American transformer economics. Management indicated that North American margins improved throughout 1Q-3Q26, with market pricing continuing to rise and no reported US customer delays or cancellations. With North America representing approximately 68% of backlog, we continue to see healthy visibility into future deliveries. 3Q26 revenue of W1.2tr and operating profit of W285bn, with a 24.1% margin, were 2-9% lower than the latest Bloomberg consensus estimates. Top-line growth of 3% QoQ and 19% YoY was mostly driven by a surge in N America distribution revenue to W325bn (+41% QoQ, +86% YoY). Backlog continued to grow YoY (+27%) to US$8.8bn in total, while quarterly order declined by 32% QoQ to US$980mn;