Hanwha Corp
The author is an analyst for NH Investment & Securities. He can be reached at dongyang.kim@nhqv.com -- Ed.
In-house businesses have been reorganized into: construction, global, and momentum. The firm’s growth potential is rising on the expansion of its green energy/materials ventures and high-value added new businesses. EV should strengthen on the acquisition of DSME and likely value hike for subsidiary Hanwha Aerospace (which integrated the group’s defense business). The shares are trading at a 66% discount to NAV.
Reorganization of business portfolio and expected M&A effect
After reorganizing the its business portfolio, Hanwha Corp plans to promote eco-friendly and high value-added new businesses in earnest. The global (materials) division plans to strengthen its IT materials business, including eco-friendly energy sources/materials such as ammonia and hydrogen, rechargeable battery materials, and semicon materials. The momentum (machinery) division will strengthen its eco-friendly energy process equipment business, including solar, rechargeable battery, and semicon process equipment.
Six affiliates of the Hanwha Group, including Hanwha Aerospace, are in the process of completing the acquisition of a 49.3% stake in DSME for about W2tn. We expect Hanwha Corp to strengthen its business portfolio, including the renewable energy (hydrogen/LNG/wind power) and defense businesses.
1Q23 review: IFRS17 effects; favorable results at Hanwha Aerospace
Hanwha Corp booked 1Q23 consolidated sales of W14,402.4bn (+33% y-y) and OP of W1,373.8bn (+31% y-y), significantly exceeding consensus. Following the introduction of IFRS17, insurance subsidiaries' sales fell and profits increased. Hanwha Aerospace contributed to an increase in earnings thanks to a surge in ground defense sales.
The firm’s non-consolidated business portfolio (OP of W48.9bn, +72% y-y) was reorganized into global (materials), momentum (machinery), construction, and other (brand royalty) divisions. We believe profitability at the construction and momentum divisions fell despite sales growth due to sales of large-scale construction projects and the settlement of brand royalties. Profitability is expected to improve gradually on the back of continued top-line growth at the momentum division and the possible resumption of an Iraqi housing project at the construction division.