Smart Mobility Venture Bodes Well
The author is an analyst of NH Investment & Securities. He can be reached at jack.baek@nhqv.com. -- Ed.
Daedong Corp boasts the largest market share among Korean agricultural machinery manufacturers. It is planning to expand its business scope, including entering the smart mobility arena, with the ultimate aim of becoming an agricultural machinery platform player. In addition to continued solid domestic sales, the firm should display sound exports of agricultural machinery to North America. Over the long term, we expect it to enjoy earnings contributions from autonomous driving and smart farm ventures.
Expect healthy 2022 earnings growth on forex rate effects, ASP hikes
Soothing worries that 1Q22 data was indicating slowing exports to North America and sluggish domestic sales of tractors, Dadeong Corp’s OPM likely widened q-q in 2Q22. We estimate 2Q22 sales of W403.9bn (+19.5% y-y), with OP of W40.8bn (+71.0% y-y). OPM likely topped 10%, helped by: 1) strong domestic sales of tractors; and 2) wider margins at the firm’s North American domain thanks both to favorable forex market conditions and ASP hikes.
During slack season (2H), the company usually records operating losses for 4Q. However, we expect the extent of such losses this year to narrow y-y. In contrast to 2021, when Dadeong Corp’s annual OPM showed a 0.6%p y-y decrease due to market-friendly pricing (in order to expand US market share), OPM should climb 1.1%p to 4.3% this year in response to ASP hikes and cost reductions.
Smart mobility venture bodes well; end goal is becoming agricultural machinery platform player
Daedong Corp plans to enter the smart mobility market via subsidiary Daedong Mobility (66.6% stake). Daedong Mobility is targeting 2022 sales of around W100bn (generated from small tractors, chains, and work machinery). But, the subsidiary’s sales next year should top over W200bn on the addition of sales for e-bikes and 0.5-ton electric trucks, both of which are to be produced at a new plant (construction to wrap up in August). Accordingly, the smart mobility division should start contributing to Daedong Corp’s consolidated sales from 2023, when its supply of two-wheeled electric vehicles to Kakao Mobility is slated to begin.
For full-year 2022, we see sales of W1.37tn (+16.4% y-y) and OP of W59.2bn (+55.0% y-y), spurred by a likely healthy widening in Dadeong Corp’s share of the North American agricultural machinery market. Its share of small/medium-sized tractor market in North America is set to rise from 7% in 2021 to 9% this year.