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Dawonsys: Earnings Momentum Unaffected by COVID-19
Electric Train Business Displaying Strong Growth
Dawonsys: Earnings Momentum Unaffected by COVID-19
  • By Lee Hyun-dong
  • April 9, 2020, 13:57
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The author is an analyst of NH Investment & Securities. He can be reached  at -- Ed.


Dawonsys is growing by diversifying its business portfolio based on the competitiveness of its power electronics technology. The surge in electric train orders in 2019 is expected to drive earnings growth this year. In addition, sales growth at other businesses (eg, plasma power supplies, nuclear waste disposal, and medical equipment) should also spur future growth.

Electric train business displaying strong growth

Dawonsys’s core power electronics technology converts commercial power into specialized power supply using semiconductors. Having diversified its business portfolio based on its technological competitiveness, the firm now operates: 1) electric train; 2) nuclear fusion power supply; 3) plasma power supply; and 4) other businesses.

The rolling stock (electric train) business is Dawonsys’s cash cow and growth engine. Noting that the majority of related orders stem from the government, we believe that the business will be relatively unaffected by the Covid-19 crisis. In 2019, Dawonsys’s electric train order backlog surged to W884.7bn (+86.2% y-y). Accordingly, 2020 sales should reach W302.0bn (+72.5% y-y). In the domestic electric train market, as new and replacement demand is on the rise due to strengthening safety regulations, new orders are expected to reach W1tn pa over the next five years, a development that should drive earnings growth. The GTX project and an increase in exports should act as growth engines.

Corporate value to rise on increasing new business sales

Dawonsys’s power supplies are being used in nuclear fusion projects, which have been established to secure a new large-capacity clean energy source. In detail, the firm has partnered with the National Nuclear Fusion Research Institute to participate in the Korea Superconducting Tokamak Advanced Research (KSTAR) project and the International Thermal-nuclear Experimental Reactor (ITER) project, which are expected to generate annual sales of approximately W10bn. Moreover, related earnings should rally in the future upon the successful commercialization of a nuclear fusion plant.

The company is currently trading at a 2020E P/E of 24.0x and 2021F P/E of 10.4x. We expect: 1) the supply of semicon plasma equipment worth W10bn; 2) orders for nuclear waste disposal in line with the decommissioning of Kori Nuclear Power Plant #1 from 2021; and 3) the IPO of subsidiary Dawonmedax (develops boron neutron capture treatment medical devices for cancer treatment) in 2021 to bolster Dawonsys’s enterprise value.