Expanding New Business Portfolio
The author is an analyst of NH Investment & Securities. He can be reached at dongyang.kim@nhqv.com. -- Ed.
In addition to its in-house defense business, Hanwha Corp is strengthening its growth potential by expanding its business portfolios, including its renewable energy (solar power and hydrogen) and aerospace ventures. Its shares are currently trading at a 58% discount to NAV.
Expanding new business portfolio, including renewable energy and aerospace ventures
Despite Covid-19 effects, Hanwha Corp is displaying sound earnings visibility, spearheaded by its defense business (in-house defense business and Hanwha Aerospace) and financial affiliates, as well as enjoying favorable effects from the booming stock market. In 2021, we expect consolidated OP to rise 19% y-y to W2.6tn. Hanwha Corp is strengthening its new business portfolio via: 1) an investment strategy concentrating on solar power and hydrogen via equity investment in Nikola (via Hanwha Energy) and Hanwha General Chemical (affiliate of H Solution, a firm wholly owned by the Hanwha Group’s founding family), and a rights offering at Hanwha Solutions; and 2) the beefing up of its aerospace business through Hanwha Aerospace’s acquisition of stakes in Satrec Initiative, etc.
Maintaining a Buy rating, we raise our TP from W37,000 to W40,000, reflecting changes in listed affiliates’ share prices. Hanwha Corp’s shares are trading at a 58% discount to NAV. Expectations towards Hanwha General Chemical (sub-subsidiary of Hanwha Corp)’s IPO bode well for asset value.
4Q20 preview: Earnings to miss consensus on one-off costs
For 4Q20, we expect Hanwha Corp to record consensus-missing consolidated sales of W12.7tn (flat y-y) and OP of W304.2bn (+165% y-y).
Non-consolidated OP will likely prove sluggish due to both one-off costs related to restructuring of the firm’s trading arm and the disappearance of base effect for its in-house defense business. In terms of consolidated OP, all of its listed subsidiaries except Hanwha E&C (whose earnings were undermined by discontinuation of its Iraq housing business) likely met consensus. We also believe that Hanwha Life Insurance saw a write-back of variable insurance-related guarantee reserves amid a stock market boom.
Looking at 1Q21, Hanwha Corp’s consolidated OP should rise to W406.1bn (+37% y-y), backed by low-base effect from one-off losses at the trading arm in 1Q20 and earnings growth at consolidated subsidiaries.