Mid/long-term Policy Momentum to Strengthen
The author is an analyst of NH Investment & Securities. He can be reached at ys.jung@nhqv.com -- Ed.
Prior to the introduction of the HPS, concerns are likely to remain in play over lackluster orders. However, fuel cell market growth forecasts for 2022 remain unchanged thanks to the planned introduction of the new system. We expect policy momentum to build again ahead of the P4G Summit and the likely raising of greenhouse gas reduction targets.
Mid/long-term policy momentum to strengthen
While there are near-term concerns over a lack of orders and delayed earnings growth, policy momentum should emerge as a mid/long-term growth driver. In particular, we note the upcoming P4G Summit (12 countries including Korea to attend) in Seoul (May 30~31), the planned announcement of the ‘Basic Plan for Implementation of Hydrogen Economy’ (in 2Q21), and the likely hiking of greenhouse gases reduction targets (at end-2021).
We also draw attention to likely policy support for creating a hydrogen industry ecosystem, including the introduction of the Hydrogen Energy Portfolio Standard (HPS; to be implemented in 2022 after legal amendments in 2H21) and an individual natural gas rate system for hydrogen manufacturing (July).
Doosan Fuel Cell is also in the process of developing new products and expanding their application. In addition to existing fuel cells, Tri-gen systems (which can produce hydrogen, electricity, and heat altogether) are expected to be commercialized in 2022. The firm’s client list is also expanding. In April, Doosan Fuel Cell announced its plan to build a 100MW fuel cell plant at KOGAS’s LNG plant in Incheon and a 200MW fuel cell plant for the Chungbuk Infrastructure Energy Project. We believe that the firm’s mid/long-term growth momentum remains valid.
1H21 orders slightly disappointing amid transitional period before introduction of HPS
While Doosan Fuel Cell’s 1Q21 earnings improved y-y, with sales of W72.0bn (+258.8% y-y) and OP of W0.3bn (TTP y-y), its results fell short of consensus. The firm recorded a net loss of W4.3bn, as tax of W5.8bn related to a corporate split was reflected on the non-operating side. There are worries over the fact that Doosan Fuel Cell only recorded 6MW of orders (or 4.2% of its annual order target of 142MW); however, the company’s guidance for 2021 (sales of W526.4bn, OP of 33.0bn, and new order target of 142MW) remains unchanged.
In 2Q21, prior to the introduction of the HPS, there will be a lack of orders and slight earnings deterioration as domestic fuel cell orders are expected to begin in earnest in 2H21. However, we expect to see resumed orders from 3Q21 and sales growth from 4Q21. Thus, our annual forecasts remain largely unchanged.