Liquidity Problem at DHIC Continues
The author is an analyst of NH Investment & Securities. He can be reached at dongyang.kim@nhqv.com. -- Ed.
Doosan Corp is in the process of selling assets to resolve liquidity issues at its subsidiary, DHIC. Even if liquidity is successfully secured, Doosan Corp’s dividend payout ability is to weaken on inevitable top-line shrinkage at the Doosan Group. We maintain a Hold rating.
Securing of liquidity continues in 2021
Doosan Corp is in the process of selling assets of Doosan Corp and DHIC in order to resolve liquidity issues at Doosan Heavy Industries & Construction (DHIC). Doosan Corp had sold its stakes in Doosan Tower, Mottrol, NeoPlux (96.8%), and Doosan Solus (18%), and it has participated in a DHIC rights offering (W1.2tn). DHIC is in process of selling its stake in Doosan Infracore. Even if liquidity is successfully secured, top-line shrinkage at the Doosan Group appears inevitable. Doosan Corp now has only its electro-materials, industrial vehicles, and fuel cell arms as in-house businesses. DHIC (42.0%) and Doosan Fuelcell (15.3%) are among its remaining subsidiaries. Given decreased cash flow, it is difficult to expect DPS to remain at the 2019 level.
Although adhering to a Hold rating, we raise our TP from W42,000 to W50,000 in reflection of adjustments to our in-house businesses earnings estimates, a rollover in the base year for our TP calculations (2020 → 2021), asset disposals, affiliates’ rights offerings and share price changes, and a higher amount of collateral provided (W1.13tn → W3.1tn with DHIC stake).
4Q20 preview: To show q-q earnings improvement
We expect Doosan Corp to record 4Q20 sales of W5,084bn (+11% y-y) and OP of W207.4bn (-26% y-y).
OP at in-house businesses (including overseas operations) should arrive at W59.1bn (-16% y-y), displaying q-q improvement. While new product launches at the industrial vehicle domain should partially offset Covid-19 effects, total in-house business OP will likely prove sluggish y-y due to off-seasonality effects at the electro materials business and recognition of expenses stemming from the disposal of Doosan Tower.
In 1Q21, we expect in-house business OP (W30.5bn, -46% y-y) to decrease on both Doosan Corp’s disposal of its Mottrol stake and a reduction in rental income from Doota Mall in the wake of the sale of Doosan Tower.