[TECH in a Week] Estradfg expands rail, moves toward an 'AI city'... reshaping its transportation SI business

Estradfg was launched in 2013 from the transportation business division of Samsung SDS and is currently listed on the KOSDAQ market. The company has built its business base by supplying transportation systems in its core areas of roads and rail. Its main offerings include toll collection systems (TCS) for highways, electronic toll collection systems (ETCS) based on Hi-Pass, intelligent transportation systems (ITS), automated fare collection systems (AFC) for rail, and rail signaling and communications systems.

In the road segment, it has provided integrated systems for vehicle recognition, traffic information, and toll processing. In the rail segment, it has handled fare processing based on transit cards and gate systems, as well as signaling and communications. Estradfg has participated in major transportation projects in South Korea and has expanded its business mainly in the United States and Asia overseas, with AFC at the center of its overseas business.

Estradfg is currently pursuing the acquisition of LS Electric's rail signaling business. At the same time, it is serving as the lead organization of a private consortium in the Ministry of Land, Infrastructure and Transport's Wonju K-AI City project. By moving ahead on both fronts, it is expanding beyond its existing transportation infrastructure business into city AX.

Estradfg is pushing to transform itself from a transportation SI company into a comprehensive company spanning rail signaling and AI-based city operations. Based on its core businesses in roads and rail, it is broadening its scope to include rail signaling and AI-based city operations. Estradfg is seeking change as it moves away from a transportation SI-centered structure.

Rail-related operations have recently taken up a larger share of Estradfg's revenue structure from construction contracts. Last year, construction contract revenue in the rail segment was KRW 117.5 billion, while construction contract revenue in the road segment was KRW 29.5 billion. Rail revenue exceeded road revenue. As of year-end, the balance of rail construction contracts stood at KRW 70.5 billion.

The company is applying AI to transportation operations, maintenance, and city data analysis. It is also seeking to expand from supplying individual road and rail systems to a structure based on the use of transportation data. The expansion covers city infrastructure operations and user services.

During its growth, Estradfg entered the electric vehicle charging infrastructure business. It later spun off the related division in 2022 through a physical split-off. SK Networks invested in the newly established company. That new company later became the current SK Electric Link.

After the separation of the charging business, the company refocused on transportation infrastructure such as roads and rail. In particular, it made successive organizational and business adjustments related to rail this year. Those moves further clarified the direction it is taking.

Against this backdrop, the headline referred to a push for an acquisition worth KRW 74.5 billion.

After completing its merger with ST Electric Communications, a rail electricity and communications affiliate, last month, Estradfg continued to pursue the acquisition of LS Electric's rail signaling business. To that end, it approved the business transfer proposal at an extraordinary shareholders' meeting on the 16th of last month.

However, the transaction schedule was delayed from the original plan. Estradfg filed a revised disclosure on the 29th of last month and changed the closing date for the rail signaling business transfer from September 30 to October 16.

The acquisition price is KRW 74.536 billion. Sales of the rail signaling business being acquired came to KRW 78,446,980,000, equivalent to 46.63% of Estradfg's revenue in the immediately preceding fiscal year.

Once the acquisition is completed, the rail segment's share of the company's overall business structure is expected to expand. Estradfg already has signaling technologies for urban rail, general rail, and high-speed rail, and it plans to strengthen its signaling, communications, and AFC portfolio once LS Electric's business is added.

Estradfg is targeting overseas markets as a key focus. The company is carrying out AFC business in the United States, and recently it has been seeking opportunities related to rail signaling and toll collection in Asia, including Thailand. It is pursuing expanded orders while connecting the technologies and references it has secured in South Korea to overseas contracts.

This acquisition is not just about scale expansion. Estradfg has grown mainly around roads and AFC, but with this deal it is upgrading rail signaling to a core business. Rail is a field the company is targeting to strengthen as a key business.

Estradfg's business restructuring points toward a shift into a company that handles the broader transportation infrastructure sector. It is broadening its business structure by elevating rail signaling to a core pillar alongside roads and AFC.

AI is the new growth pillar. Estradfg launched its AX business division this year and has begun expanding its AI applications in transportation systems.

In January, Estradfg also won a contract from Korea Expressway Corporation to build an AI-based ITS remote maintenance system. The company is expanding its growth base as overseas opportunities grow, its business is reorganized around rail, and its AI business is strengthened.

Traditional transportation equipment maintenance centered on checking the site and taking action after a failure occurred. By contrast, AI-based systems focus on remotely monitoring equipment conditions, analyzing abnormal signs, and identifying the possibility of failures in advance.

This shift is creating the possibility for Estradfg to expand beyond system supply into operations and maintenance. The Wonju K-AI City project is designed to scale up that strategy to the city level.

In June, the Ministry of Land, Infrastructure and Transport selected Wonju, Cheonan, and Asan as AI-specialized pilot city sites. In the Wonju project, Estradfg is serving as the lead organization of the private consortium.

The consortium includes Hyundai Motor, NHN Cloud, Saltlux, Seoul Robotics, the Wonju Future Industry Promotion Agency, and Kangwon National University Wonju Campus. The consortium plans to develop an AI city model for all of Wonju and create a priority district in the Innovative City area. The AI applications will include lidar-based object recognition, digital twins, autonomous mobility, disaster and safety, and healthcare.

On the 9th of last month, the Ministry of Land, Infrastructure and Transport announced the 'K-AI City Implementation Strategy.' The strategy presented five key tasks centered on AI services, infrastructure, domestic and international expansion, and laws and institutions. The plan calls for laying the groundwork by 2027, creating pilot city results around 2030, and then expanding them.

The Wonju project is being carried out within this flow. The project has a total budget of KRW 198.1 billion, with financing consisting of KRW 143.4 billion from the national budget and KRW 48.9 billion from local governments. The project is currently in the process of pursuing a basic plan, and aims to be designated as a pilot city in 2027 and complete verification of AI infrastructure and services by 2030.

Estradfg's role is presented in a way that differentiates it from conventional transportation SI. Its role is not limited to installing separate road and rail systems; rather, it is focused on integrating and analyzing transportation, safety, and daily-life data and overseeing a data-based system for city operations.

The company unveiled an AI city intelligence center at the World Smart City Expo last month. The core function of the AI city intelligence center is to integrate data collected across the city and analyze it with AI. The goal is to use it in the operation of services such as transportation and safety.

Estradfg is scheduled to operate the K-MaaS service at the ITS World Congress in Gangneung this month. MaaS is a concept that integrates different modes of transportation such as buses, rail, and taxis so they can be searched and used within a single service. Based on the fact that the road and rail system data it has already built can be used in actual mobility services, Estradfg is broadening its service touchpoints to K-MaaS.

The difference between MaaS and conventional SI lies in whether the data created through system construction is actually used in mobility services. Estradfg is moving to expand services based on the transportation data and system operation experience it has accumulated over the years.

The common thread in K-AI City, AI-based ITS, and K-MaaS is also the use of Estradfg's transportation data and system operation experience. Through this, Estradfg is seeking to transform its business from an individual facility construction company into one that analyzes data and operates city and mobility services.

At the same time, Estradfg is expanding its growth pillars into rail and AI, while continuing its business restructuring. This aligns with the shift away from facility construction-centered business toward data analysis and city and mobility service operations.

However, recent earnings have not yet supported this business restructuring. Despite continuing the restructuring and expanding the growth pillars into rail and AI, earnings recovery remains a challenge.

Last year, Estradfg reported KRW 168.2 billion in consolidated revenue and KRW 9 billion in consolidated operating profit. That was a 11.0% decline from revenue of KRW 189 billion in 2024, and about a 20% decline from operating profit of KRW 11.3 billion in 2024.

This year, quarterly revenue declines and operating losses have become more pronounced. Consolidated revenue in the first quarter of this year was KRW 15.5 billion, down more than 57% from the same quarter a year earlier. Operating loss in the first quarter was KRW 4.3 billion.

Second-quarter revenue was KRW 18.8 billion, and the second-quarter operating loss was KRW 2.7 billion, extending the quarterly deficit. Cumulative first-half revenue was about KRW 34.3 billion, and cumulative first-half operating loss was about KRW 7 billion. Compared with about KRW 75.5 billion in revenue in the same period last year, first-half scale shrank to less than half.

However, Estradfg has a high share of project-based business, in which revenue is recognized based on construction progress. As a result, quarterly revenue and profitability can fluctuate more widely depending on when large projects start and progress.

The immediate priorities are completing the acquisition of LS Electric's rail signaling business and the subsequent integration. Revenue for that business last year was about KRW 78.4 billion. Stable absorption of the existing organization is needed, and if it leads to follow-up orders, it could support a recovery in scale.

By contrast, K-AI City requires a long-term perspective. The government's target is to create pilot city results around 2030. The nature of K-AI City is closer to a test bed for confirming Estradfg's ability to transform its business model than to something that will contribute to earnings right away. The direction of the transition is from a transportation SI company to an AI-based city operations company.

The challenge in AI-based ITS and K-MaaS projects is not staying at the level of individual project awards. The technologies and data from each project need to be applied repeatedly to other regions and transportation systems, and if repeated application is possible, profitability can improve. On the other hand, if each local government or ordering entity requires separate system development and integration, the SI-type structure continues. The SI-type structure is characterized by rising labor input as business scale expands.

In this regard, the assets secured through Wonju K-AI City are the city intelligence center and AI operation technology. The key question is whether the city intelligence center and AI operation technology from Wonju K-AI City can be expanded to other local governments and overseas smart city projects.

Estradfg started in transportation systems such as Hi-Pass and AFC, and is expanding its business axis into rail signaling and AI-based city operations. In the rail segment, it is pursuing a large-scale business acquisition to strengthen its core areas, while in the AI segment it is testing new business models based on K-AI City, ITS, and MaaS.

Going forward, the key milestone is set to be the point on the 16th, the expected closing date for the rail signaling business transfer, when the company will need to turn the transition into actual results. In the rail segment, the challenge is to convert the completed transfer into additional orders, while in the AI segment, the key issue is whether the city intelligence center technology secured through K-AI City can be replicated in other regions.

The key point to watch going forward is whether these changes can be quantified. The variables expected to shape future performance are the stable integration of the rail business and the potential for AI city technology to expand into other regions and businesses.

Source: TECHWORLD · Kim Seung-gi
Original: https://www.epnc.co.kr/news/articleView.html?idxno=407509

References

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