Needs to Diversify Client Base
The author is an analyst of NH Investment & Securities. He can be reached at ys.jung@nhqv.com -- Ed.
We believe that Doosan Fuel Cell’s 2022 order volume exceeded its annual order target. However, the firm’s sales volatility remains high as its 2022 orders were concentrated at the end of the year. Reflecting cuts to our 2023 earnings forecasts, we lower our TP by 9%. That said, we point out that potential good opportunities still exist for the firm this year under the detailed regulations of the hydrogen power generation bidding market.
Orders received in 2022 exceed target; needs to diversify client base to stimulate mid/long-term orders
Although sticking to a Buy rating, we lower our TP on Doosan Fuel Cell by 9% from W44,000 to W40,000, reflecting a 15% chop to our annual sales forecast for 2023. In calculating our TP, we applied a P/S multiple of 5.3x, the global 2023F average.
We have downwardly adjusted our 2022 and 2023 sales projections by 30% and 15%, respectively, from our previous estimates. As orders in 2022 concentrated in 2H22, a sales gap appeared up until 3Q22. In play also is the likelihood that 2023 sales toward domestic power generation companies will carry high volatility as delivery dates are highly subject to alteration (depending upon the individual operating situations at power companies). To achieve stable top-line growth over the mid/long-term, we believe that client base diversification is required.
Doosan Fuel Cell exceeded its 2022 annual order guidance of 240MW by winning 297MW fuel cell orders (domestic 192MW; China 105MW). Annual order size for 2023 is sized at 243MW, assuming domestic orders of 143MW and overseas orders of 100MW. As for domestic orders, we believe that the specific scale will be determined once the detailed rules for the hydrogen power generation bidding system (which is scheduled to begin in the 2Q23) are announced. Of particular note, Doosan Fuel Cell’s fuel cell market competitiveness is well situated to increase if thermal efficiency and localization rates are included in the non-price indicators for the hydrogen power generation bidding system. And, an increase in smaller-sized fuel cell projects should allow Doosan Fuel Cell to reduce its heavy sales reliance upon a handful of large-sized power generators, in turn improving the firm’s overall sales stability
4Q22 preview: To show stronger profitability alongside sales growth
We expect Doosan Fuel Cell’s 4Q22 earnings to arrive slightly above consensus, estimating sales of W150.1bn (+14% y-y) and OP of W10.9bn (+22% y-y; OPM 7.3%). Moving ahead, margins should normalize gradually as orders received in 2H21 come to be reflected in sales. Quarterly sales volatility is likely to be high until 1H23. But, with the firm’s fuel cell order backlog as of end-2022 estimated to be about W890bn, stable OP growth should appear from 2H23.