In Final Stage of Selling down Assets and Businesses
The author is an analyst of NH Investment & Securities. He can be reached at dongyang.kim@nhqv.com. -- Ed.
Doosan Corp’s asset sell-downs to address liquidity issues in its affiliates are technically finalized. We expect the size of collateral provided by the firm to be scaled down or terminated. Earnings growth is to be led by its electronics domain, its fuel cell centered in-house businesses, and its new businesses portfolio. Doosan Corp’s shares are trading at a 56% discount to NAV.
Liquidity no longer issue
Doosan Corp and Doosan Heavy Industries & Construction (DHIC) are in the final stages of selling down assets and businesses in order to resolve liquidity issues at DHIC. Among its W3tn in borrowings from state-run banks, DHIC has paid down W2.1tn via a rights offering and asset disposals.
We believe that Doosan Corp’s DPS will sustain at the end-2020 level (W2,000, differential dividend for major shareholders), noting expectations towards earnings improvement for its subsidiaries (DHIC, Doosan Pure Cell, Doosan Bobcat), its in-house businesses, and its new business portfolio (fuel cell power packs, collaborative robots, and logistics).
Adhering to a Buy rating, we raise our TP on Doosan Corp from W120,000 to W155,000, reflecting: 1) a change in our EV/EBITDA multiple (8.7x → 7.9x) for its in-house businesses; 2) increased value of its equity stakes in listed-subsidiaries; and 3) a lessened debt burden.
3Q21 review: Mix of positives and negatives
Doosan Corp announced 3Q21 sales of W3.789tn (-10% y-y) and OP of W259.5bn (+19% y-y).
In-house business (including overseas subsidiaries) OP for the quarter totaled W27.4bn (-29% y-y, comparison with the same standard). Sales at the firm’s in-house electronics domain improved on a widened portion of high value-added products for semiconductors and 5G networks. However, OPM narrowed on commodity price hikes and logistics disruptions. Earnings remained sluggish at the in-house fuel cell domain due to the continued impact of tepid 1H21 orders.
Looking at 4Q21, we expect solid in-house business OP growth of W37.9bn (+30% y-y, comparison with the same standard), with the electronics division to benefit from a widened portion of high value-added products and the fuel cell division positioned to see higher earnings at end-2021. The company’s new businesses portfolio (fuel cell power packs, collaborative robots, and logistics) should show 4Q21 sales of W70.6bn (+217% y-y).