The author is an analyst of NH Investment & Securities. He can be reached at email@example.com. -- Ed.
Cowintech’s process automation systems are essential for rechargeable battery production. We expect the Covid-19 outbreak to highlight the importance of investing in process automation. Despite earnings growth arising from increased investment by major domestic and overseas rechargeable battery makers this year, Cowintech is trading at a 2020E P/E of 6.1x, a level we view as being undervalued.
Producer of process automation systems essential for rechargeable battery production
Cowintech produces process automation systems for rechargeable battery makers. By implementing Cowintech’s systems, battery makers are able to: 1) reduce their labor costs; and 2) improve their yields. Major domestic clients include LG Chem and Samsung SDI.
Investment points for Cowintech include: 1) increasing investment by domestic and overseas rechargeable battery makers; and 2) the growing adoption of the firm’s automation systems in new industries (eg, display, semicon).
The importance of process automation is likely to come into the limelight due to the Covid-19 outbreak. Thanks to its unrivaled competitiveness, Cowintech exclusively supplies logistics automation systems to major rechargeable battery makers. We expect the company to book 2020 sales of W90bn, driven by investment by LG Chem (Poland, China) and Samsung SDI (Hungary, Tianjin China). In addition, new overseas orders are expected thanks to the firm’s proven track record. Of note, a major European battery maker client plans to increase its production capacity by 32GWh by 2023. If 16GWh worth of investment is made this year, Cowintech could win orders of more than W30bn.
Technological competitiveness to expand in various industries
The adoption of Cowintech’s automation technology is expanding beyond the rechargeable battery industry, with sales to the semicon and display industries set to reach W15bn this year. We predict that the firm will book 2020 sales of W126.8bn (+39.2% y-y) and OP of W29.8bn (+44.2% y-y).
Trading at a 2020E P/E of 6.1x, the company’s shares appear undervalued versus the average P/E of 9x for rechargeable battery equipment makers. We note that buoyed by expectations for large-scale investment, process automation equipment makers SFA and SMCore (Cowintech’s peers) have seen their P/Es rise to over 25x.