Daedong Corp
The author is an analyst for NH Investment & Securities. He can be reached at jack.baek@nhqv.com -- Ed.
Daedong Corp’s export portion of large tractors, which came to only 1.5% in 2022, climbed to 7.6% in 1Q23. While small/mid-sized tractor exports led the firm’s earnings growth in 2022, this year, large tractors are taking the lead.
Growth continues in North America
Solid earnings likely continued at Daedong Corp in 1H23, helped by a y-y reduction in logistics costs and raw materials prices. Although there were concerns over sluggish domestic tractor sales, the firm reported strong 1Q23 sales of W400.9bn (+12.3% y-y) and OP of W33.7bn (+56.4% y-y). We estimate the company’s 2Q23 sales at W485.7bn (+6.2% y-y) and OP at W32.5bn (-29.5% y-y), with OP to arrive similar q-q.
We attribute the expected y-y downturn in OP to the tepid domestic tractor market, which typically offers high margins. However, solid export growth continues amid such positives as favorable forex rates and ASP expansion. Daedong Corp is forecast to log company-wide 2023 sales of W1.6tn (+8.9% y-y) and OP of W74.4bn (-15.7% y-y).
We highlight Daedong Corp’s growing export portion of large tractors, which jumped from 1.5% in 2022 to 7.6% in 1Q23. In terms of share price trend, Deere & Company, a major player in agricultural machinery, is performing solidly on the back of robust large tractor business. Considering Daedong Corp’s rise in large tractor sales in the North American market, a share price rebound is likely.
Domestic autonomous farming machinery market to expand on decrease in farming population
Daedong Corp is continuously investing in R&D for the supply of domestic autonomous farming machinery. Currently, preparations are underway for the release of Level 3 autonomous farming machinery products (straight, turning, and working). Tractors and combines are on track for release this year, and transplanters are waiting in the wings for next year. In addition, the company is expanding its business portfolio through its subsidiaries in smart farming (Jeju Daedong) and smart mobility (Daedong Mobility).