Current Reality Harsh, but Long-term Outlook Remains Intact
The author is an analyst of NH Investment & Securities. He can be reached at ys.jung@nhqv.com -- Ed.
Amid a short-term contraction in the global wind power market due to higher costs, utilization rates at CS Wind’s major subsidiaries are sluggish. While top-line growth should continue on the mid/long-term expansion of the offshore wind power market, it will take time for profitability to recover. We lower our TP by 26% to W74,000.
Current reality harsh, but long-term outlook remains intact
We maintain a Buy rating on CS Wind, but lower our TP by 26% from W100,000 to W74,000. Our TP is derived by applying a P/E of 25.0x, a 20% premium to the 2024F average of global wind power players, to 2024F EPS.
We lower our sales and OP forecasts for 2022 by 5.5% and 38.2%, respectively, to reflect: 1) a drop in capacity utilization due to sluggish new orders; 2) the reflection of cost increases at new subsidiaries in the US, Portugal, and Turkey; and 3) the rise in interest costs and rates in line with debt increase. We note that concerns remain over near-term orders in Europe due to US policy uncertainties (such as delays in the passage of eco-friendly laws) and increased costs.
The mid/long-term renewable energy policy direction remains unchanged, but given the nature of the industry, a temporary contraction in investment is inevitable due to greater costs during the current inflationary period. In the long term, we should continue to see reduced use of fossil fuels and improved energy independence through renewable energy. In particular, with the US and European offshore wind power markets set to enter large-scale installation cycles from 2024, earnings are expected to return to normal in two years. Accordingly, we calculated our TP based on 2024F earnings forecasts.
Despite short-term burden, new subsidiaries to help in long term
In 2022, CS Wind’s annual production capacity will expand to W1.7tn through investment in new subsidiaries in the US, Turkey, and Portugal. Since 2021, concerns have emerged over slow sales in Vietnam and Malaysia due to increased transportation costs and contracted orders in North America. But, CS Wind plans to overcome the sales slowdown by focusing on subsidiaries in Turkey and Portugal as they face shorter shipping distances.
In the mid/long term, the wind power market is likely to expand as the portion of the offshore market rises. With transportation conditions to play an important role in winning orders in the future, the firm’s new subsidiaries, which are undergoing facility investment, should lead top-line growth on their geographical strength.