Machinery
The author is an analyst for Shinhan Securities. He can be reached at ldh@sinhan.com -- Ed.
2Q23 review: Earnings surprise
Doosan Bobcat reported sales of USD2.03bn (+15% YoY) and operating profit of USD360mn (+44% YoY) for 2Q23, an earnings surprise that exceeds market estimates by 3.2% and 28.3%, respectively. KRW-denominated sales came in at KRW2.67tr (+20% YoY) and operating profit at KRW466.5bn (+51% YoY). Operating profit was higher than the annual average of KRW443.3bn in 2018- 2020. Operating margin reached 17.5% (+3.5%p YoY). Even when excluding one-off gains of USD52mn from severance pay adjustments, operating margin is still high at 14.9% thanks to the increase in shipments and decline in materials and transportation costs. Earnings have continued upward with no end in sight, with sales growing in earnest from 2Q22 on the easing of parts supply disruptions.
Boundless growth of the North American market
Order backlog in North America has decreased slightly, but remains high enough to keep the company busy for eight months. The current uptrend in orders may continue, contrary to expectations that the market would slide upon the exhaustion of pent-up demand. Domestic companies that have entered the US are not even halfway done with their capex plans in the country. A surge in demand could last several years considering the Biden administration’s infrastructure and renewable energy projects.
Sales of compact equipment increased by 9% YoY. Portable power equipment sales were up 30% YoY, with demand growth driven by oil price hikes. The industrial vehicle division saw sales jump 44% YoY due to strong capex spend in the US, and is set to launch Bobcat models in North America and Europe next year.
TP raised to KRW80,000 with focus placed on structural growth
We retain BUY on Doosan Bobcat and raise our target price by 9.6% from KRW73,000 to KRW80,000. The valuation base was changed from 2023F EPS to 12-month forward EPS, with the earnings surprise in 1H23 giving reason for upward revision of our earnings projection. The sharp profit growth has driven net debt down to USD67mn from USD520mn at end-2022. Adding to the expansion of its product lineup to include industrial vehicles and grounds maintenance equipment (GME), Doosan Bobcat now has ample funds at its disposal. Strengthening internal competitiveness is a key investment point along with market growth.