2022 Forecast: OP at KRW551.8bn (+58.0% YoY)
The author is an analyst of KB Securities. He can be reached at seongjin.kang@kbfg.com. -- Ed.
Maintain BUY, target price of KRW18,000
We maintain BUY and TP of KRW18,000 on Hanon Systems. For 2022, we expect the company to see OP surge 58.0% YoY, as the semiconductor shortage should ease, boosting demand for parts from clients. Derived via the DCF model (6.1% WACC; 1.0% TGR), our TP represents 28.0x 12m fwd implied P/E, 4.06x P/B and offers 31.9% upside (vs. Nov 22 close).
Investment points
Our investment recommendation is premised on the following:
(1) Global EV unit sales are projected to grow at 3y CAGR of 44.1% and demand for eco-friendly HVAC systems should continue to expand.
(2) Hanon Systems’ five-year average order value translates into KRW780.0bn in annual revenue. In addition, given its capacity utilization for e-compressors (key component for eco-friendly HVAC systems) is only ~50%, the company still has flexibility for additional revenue expansion.
(3) Global automakers are accelerating their transition toward EVs. Accordingly, demand for eco-friendly automotive parts from major clients (i.e., Hyundai Motor Group) should grow rapidly.
2022 forecast: OP at KRW551.8bn (+58.0% YoY)
We forecast OP to surge 58.0% YoY to KRW551.8bn in 2022, which is largely in line with the market consensus. With the semiconductor shortage easing, parts demand from HMG/Ford is expected to increase 9.6%/19.1%. In addition, rebounding revenue should alleviate the fixed cost burden, and transportation costs should decline as the global supply chain disruption subsides.
Risk factors
Risk factors are as follows: (1) If HMG-bound revenue is lower than expected because of the pandemic and supply chain issues, OP may miss our estimate (1% decline in demand reduces OP by KRW2.6bn). (2) If KRW appreciates more than our projection, OP could fall short of our expectations (1% KRW appreciation depresses OP by KRW2.7bn).