New Revenue Expected from Medical Robots

The author is an analyst of NH Investment & Securities. He can be reached at hwdoh@nhqv.com. -- Ed.

 

Adhering to a Sell rating, we lower our TP on Koh Young from W85,000 to W61,000. Economic doldrums and falling oil prices are draining the firm’s sales of automotive electronics-related equipment (especially its offerings for use in EVs). On the other hand, its 5G-related IT sales look relatively solid.

1Q20 review: Earnings disappoint consensus

Adhering to a Sell rating, we lower our TP on Koh Young from W85,000 to W61,000. We derive our new TP by applying a P/E of 27x (reflecting global peers OMRON, Fanuc, Nvidia, and Keyence) to our 2020E EPS of W2,223.

On Apr 13, Koh Young released its preliminary 1Q20 results, posting sales of W50.7bn (+1% q-q) and OP of W5.6bn (+15% q-q). OP came in below both our estimate of W8.8bn and consensus of W8bn.

Reflecting in the firm’s 1Q20 results are non-executions of investments at clients in 2H19 due to delays in Chinese 5G momentum. Smartphone-related equipment sales reached W20.5bn (+150% q-q). Automobile-related equipment sales dropped 52% q-q to W7.1bn on customers’ decreased investment in EVs and automotive electronics in light of the Covid-19 crisis and oil price plunge.

Auto-related sales tepid, but IT-related sales relatively solid

Going forward, strong earnings growth will be necessary in order to justify Koh Young’s valuation premium against the equipment sector. Even given sluggish global IT investment and economic woes due to the Covid-19 crisis, Koh Young’s recent earnings trend appears somewhat insufficient to justify its high valuation premium.

Despite EV momentum and automotive electrification trends, Koh Young’s equipment sales to automotive players are lackluster. Also of concern, with the technological level of domestic and foreign competitors strengthening as of late, Koh Young is facing fiercer competition.

On the positive side, with China now emerging from the Covid-19 crisis, the Chinese government is in a hurry to build 5G infrastructure in order to stimulate the country’s economy. Also looking promising is anticipated new revenue related to medical robots down the road.

 

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