A leading Player in Domestic Fuel Cell Market
The author is an analyst of NH Investment & Securities. He can be reached at minjae.lee@nhqv.com. -- Ed.
SK E&C has joined hands with Bloom Energy to conduct a fuel cell business, and it has taken over EMC Holdings to carry out waste management and sewage treatment businesses. Thanks to these new ventures, high earnings volatility at SK E&C’s construction domain should lessen going forward.
Sets up Bloom SK Fuel Cell in partnership with Bloom Energy
Alongside Bloom Energy, SK E&C has set up a fuel cell production JV named Bloom SK Fuel Cell. Located in Gumi (Korea), the JV’s plant is to start operations from 4Q20; plant capacity is to expand in phases from 50MW to 400MW by 2025. In partnership with Bloom Energy, SK E&C is engaged in fuel cell and EPS development and operation. SK E&C has recently begun to operate fuel cell power plants in Hwasung and Paju, with respective capacity of 19.8MW (total investment of W141.4bn; 15% stake) and 8.1MW (total investment of W53.8bn; 5% stake). Aiming to boost its capacity to 10GW by 2040, the firm dominates the domestic fuel cell market together with Doosan Fuel Cell.
Adds new green energy business via acquisition of EMC Holdings
In September, SK E&C signed a share purchase agreement under which it acquired a 100% stake in EMC Holdings from Affirma Capital for around W1tn. Of note, EMC Holdings owns 970 sewage treatment facilities and one waste incineration facility, and one landfill. Following the acquisition, SK E&C is to manage waste generated from the SK Group. Of note, EMC Holdings owns subsidiaries engaged in the fields of waste management and sewage treatment facility operations, with the latter one having been spun off from its waste management business in 2018.
OCT market cap sized at less than W1tn
SK E&C’s share price equates to a 2019 P/E of 5x and a P/B of 0.8x, the averages of the construction sector. But, given the strong growth prospects offered by the fuel cell and waste/sewage treatment markets, these valuations look appealing. Of note, IS Dongseo is trading at a P/E of 10x and P/B of 1x following its acquisitions of Insun ENT and Koentec. The multiples are above the construction sector averages and are granted thanks to the firm’s entry into promising new ventures.