IS Dongseo
The author is an analyst for NH Investment & Securities. He can be reached at minjae.lee@nhqv.com -- Ed.
While the value of IS Dongseo’s construction division is bound to be dampened amid lackluster real estate market conditions, it is still to enjoy stable revenue thanks to in-house housing projects for which pre-sales events have already been carried out. Another positive is anticipated mid/long-term earnings growth at its waste battery recycling business.
Trim back expectations for housing division
We maintain a Buy rating for IS Dongseo, pointing out that the majority of its in-house housing projects have already undertaken pre-sales events, and also drawing attention to anticipated mid/long-term earnings growth at IS TMC in line with greater investment in waste battery recycling. But, we lower our TP by 17% from W54,000 to W45,000, as we: push down 12M weighted average EBITDA for the construction division by 7%; 2) cut EV/EBITDA from 3.5x to 3.0x; and 3) reflect share-price corrections at subsidiaries, including Insun ENT.
Among domestic construction players we believe that IS Dongseo will be the least affected by ongoing real estate market doldrums, noting that most of its in-house housing projects have already conducted pre-sales events. Along with its peers, the firm is to face higher cost burden stemming from raw material cost hikes, but its margins should be little sapped by such thanks to pre-sales revenue. That said, given delays in its new in-house projects (including Joongsan, Gyeongsan), the construction division is unlikely to see profit figure growth for now.
Waste battery recycling value chain offers strong potential
Having entered the waste battery recycling market in 2019 via its acquisition of Insun ENT (including subsidiary Insun Motors), IS Dongseo has since established a waste battery recycling value chain ranging from raw material procurement (Insun Motors) to pre-treatment (IS BM Solution) and post-treatment (IS TMC). Using waste battery collected by Insun Motors (30,000 units pa), IS BM Solution produces black powder and black mass, and IS TMC recovers NMC solution (18,000 tons pa), lithium carbonate (1,200 tons pa) and lithium phosphate (520 tons pa). IS Dongseo plans to make further investment of over W200bn to ramp up capacity.