Order Intake Already at 72.8% of Annual Target
The author is an analyst of KB Securities. He can be reached at newday@kbfg.com. -- Ed.
Maintain BUY, target price of KRW110,000
Our TP of KRW110,000 (12m fwd BVPS x 0.82x target P/B) on KSOE is unchanged. Earnings estimate revisions, change in 12m fwd period, ROE adjustment and changes to 1y MSB yield (RFR) and 30y KTB yield (TGR) canceled each other out. We maintain BUY, as our TP has 19.0% upside (vs. last closing price).
1.7% stake in Hyundai Heavy Industries sold; additional shares could be sold
On May 17, KSOE sold 1.509mn HHI shares (1.7% stake) to domestic/foreign institutions, generating profit of ~KRW62.6bn. The transaction was aimed at resolving KSOE’s chronic shortage of free floating shares and generating cash to fund new business ventures. KSOE maintains a 78.0% stake, which suggests it may unload more if necessary; a 50% stake +1 share must be held to maintain control of HHI. We believe the holding company discount on HHI shares owned by KSOE should be removed for a stake exceeding 50%.
2Q22 forecast: earnings to fall short of market consensus
We forecast 2Q22 consolidated revenue at KRW4.37tn (+15.0% YoY) and operating loss at KRW193.4bn (loss narrowed YoY; -4.4% OPM), with revenue in line but operating income below the consensus of +KRW37.0bn. A growing order backlog and high FX rates should sustain top-line growth, but earnings should ultimately be undermined by one-offs, such as additional loss provisioning (~KRW250.0bn) against rising steel plate prices.
Order intake already at 72.8% of annual target
For Jan-Apr, KSOE won USD10.28bn in orders (USD3.74bn for HHI, USD4.75bn for Hyundai Samho Heavy Industries, USD1.79bn for Hyundai Mipo Dockyard), or 63.5% of the 2022 target. Incl. May, order intake jumps to USD11.8bn (72.8% of target). KSOE is likely to exceed its target, but momentum may slow after June.