Order Backlog Primed to Increase
The author is an analyst of NH Investment & Securities. He can be reached at jinmyung.choi@nhqv.com. -- Ed.
On Sept 1, Hankuk Carbon announced plans to expand capacity at its composite materials domain via a treasury shares disposal. While specific business details and business partners were not disclosed due to a confidentiality agreement, we expect related OP contributions from 2021.
Raise TP: Additional OP growth is in the cards
Reflecting upward adjustments to our 2021 earnings forecasts, we raise our TP on Hankuk Carbon from W11,000 to W12,000. Our target P/E multiple remains unchanged at 11.5x.
The firm’s LNG order backlog is primed to increase in 3Q20 thanks to large-scale orders secured for LNG insulation materials. We see additional earnings expansion as also being in the cards, noting that: 1) the company has encountered no setbacks in securing orders; and 2) it is willing to further expand its composite materials business.
Announces plans to expand composite materials business
On Sept 1, Hankuk Carbon announced plans to expand capacity at its composite materials business via a disposal of 2mn treasury shares.
While specific business details, products, and business partners were not disclosed due to a confidentiality agreement, we are assuming an investment of W38bn (twice the sale price of the treasury stocks); Hankuk Carbon should be able to recoup its investment within seven years. We estimate that the plans will generate additional OP of W5.4bn pa from next year.
Order backlog primed to increase
The order backlog at the firm’s existing business is to climb from 3Q20.
In detail, the firm recently inked a W194.5bn LNGC insulation panel supply contract with Samsung Heavy Industries—the size of the deal is equivalent to roughly half of Hankuk Carbon’s annual sales. Further given that LNGC orders headed to Mozambique, Russia, and Qatar are scheduled for 1H21, the company looks well positioned to see further steady sales growth going forward.