Sales in North America to Grow up to 32% YoY in 2021
The author is an analyst of Shinhan Investment Corp. He can be reached at eoyeon.hwang@shinhan.com. -- Ed.
US single-family starts up 31.5% YoY to101,000 units in October
US housing starts were up 15% YoY to 132,000 units in October, with those for single-family homes up 31.5% YoY. The portion of single-family starts increased by 1.7%p MoM and 16.9%p YTD due to more people working from home and decreased outdoor activities amid the COVID-19 pandemic.
The US housing market boom is expected to continue in 2021. Single-family housing starts will likely climb 18% YoY (or 17.1% YoY according to Fannie Mae) for the following reasons. First, interest rates should stabilize downward under the US Fed’s yield caps or targets (YCT) policies. Second, median income is forecast to rise thanks to continuing expansionary fiscal policy.
Sales in North America to grow up to 32% YoY in 2021
Doosan Bobcat’s sales in North America are estimated to increase 13.4% YoY to USD3.04bn for 2021, based only on the assumption that the US single-family housing market will expand 18% YoY. We believe restocking demand from dealers needs to be reflected in the forecast.
Dealers held 2.3 months’ worth of inventories in September, down from an average of four or five months, due to the pandemic and uncertainty over the US presidential election. Thus, the company may receive restocking orders worth USD500mn or two months of inventories. Considering the restocking demand, North America sales should grow 32% YoY next year.
Retain BUY for a target price of KRW43,000 and top pick status
Our target price of KRW43,000 for Doosan Bobcat is based on the 2021 EPS forecast of KRW2,675 and a target PER of 16.2x (global peer average).The share prices of its three peers have gone up 41.1% YTD on average, driven by expectations for the US housing market boom. The company stands to benefit the most from the uptrend in the US housing market, given that it generates the highest share of sales from North America (74.2%) among the peers.
Doosan Bobcat is expected to deliver an earnings surprise for 1H21 due to the steady improvement in housing indicators and restocking demand, and seethe valuation gap with peers narrow as a result. Doosan Bobcat remains our top pick in the machinery sector.