Sales at Subsidiary Iljin Composites Continue Growing
The author is an analyst of NH Investment & Securities. He can be reached at kyeongkeun.kang@nhqv.com. -- Ed.
We believe the impact of labor strikes on Iljin Diamond’s share price and future earnings will be limited. While utilization rates at OEMs have likely suffered due to Covid-19, subsidiary Iljin Composites should enjoy ongoing earnings growth thanks to a strengthening of government support policies.
Impact of union strikes on share price and earnings to be limited
We lower our TP on Iljin Diamond from W44,000 to W33,000, in reflection of ongoing strikes, utilization rate deterioration at OEMs due to Covid-19, and the firm’s relative lack of communication with the market. However, given likely benefits from a strengthening in government support policies (eg, support for hydrogen cars, diesel particulate filter (DPF) subsidies, and the Hydrogen Economy Act), we maintain a Buy rating on the play.
While effects from labor strikes will likely linger for some time, the related impact on Iljin Diamond’s share price and earnings should be limited, as: 1) further cuts in utilization rate should be minimal, thanks to the introduction of alternative manpower; and 2) the company’s sales portion for industrial diamonds has fallen from 78.7% in 2018 and 45.0% in 2019 to 37.2% in 2020.
Policy benefits to sustain for subsidiary Iljin Composites
Backed by the government’s support for hydrogen vehicle supply expansion and fine dust reduction, sales at subsidiary Iljin Composites should continue growing in 2020 to W109.8bn (+24.1% y-y).
The government is aiming to increase the supply of hydrogen vehicles this year to 10,280 units (vs 5,467 units in 2019). As a domestic hydrogen tank manufacturer, Iljin Composites should continue to benefit from hydrogen vehicle market expansion. In 2020, sales at the hydrogen tank business are projected to reach W52.6bn (+49.9% y-y). In addition, in line with the government’s fine dust reduction measures, Iljin Composites’ environmental domain should benefit from rising sales of DPFs. The government’s 2020 budget for DPF subsidies has been set at W138.3bn, and 2020 sales at Iljin Composites’ environmental domain are forecast to reach W57.2bn (+7.1% y-y).