Exports for Full Year Projected to Grow 15% YoY
The authors are analysts of Shinhan Investment Corp. They can be reached at kimkyuri@shinhan.com and changmin.yoon86@shinhan.com, respectively. -- Ed.
1Q20 OP to come in at KRW4.6bn (+17% YoY)
We now expect KINX to report 1Q20 results in line with consensus estimates at operating profit of KRW4.6bn (+17%YoY) on sales of KRW17.3bn (+11% YoY). Double-digit earnings growth has been continuing over the past two years. Operating profit margin likely improved 1.3%pYoY in 1Q20, backed by: 1) operating leverage effect; and 2) high margin sales generated from overseas clients.
2020 OP forecast at KRW19.3bn (+17% YoY)
For full-year 2020, we forecast sales at KRW71.8bn (+11%YoY) and operating profit at KRW19.3bn (+17%YoY). KINX should continue to see stable earnings growth with sales linked to client data traffic. Exports (sales to overseas clients) for the full year are projected to grow 15% YoY. Backed by operating leverage effect, standalone operating profit margin is expected to improve from 19.6%in 2017 to 26.7%in 2020.
KINX and its parent Gabia (079940 KS) are preparing to build an IDC in Gwacheon Knowledge Information Town. The project is currently at the design review stage. Construction is slated to start in 1Q21 with a completion target of2023. The addition of a new IDC should increase total data center power capacity by 70-100%. KINX plans to finance its share of costs (KRW90bn) with its own cash holdings (cashable assets KRW46.2bn, net cash KRW32.2bn at end-2019) and borrowings.
Currently trading at 2020F PER of 18x; Re-rating of shares to continue
KINX shares have gained 61% over the past three months. During the same period, foreign ownership increased sharply from 10% to 22%. The company's shares are now trading at a 2020F PER of 18x. With earnings growth continuing each quarter, client data traffic set to rise on the shift to 5G and cloud computing, and share valuations of overseas peer Equinix (EQIX) remaining steady at high levels (2020F PER of 68x), we expect to see further re-rating of KNIX shares going forward.