Preparing to Leap Forward Again
The author is an analyst of NH Investment & Securities. He can be reached at dongyang.kim@nhqv.com. -- Ed.
Doosan Corp’s liquidity issues have been successfully addressed. Going forward, growth potential is to strengthen for the firm thanks to stable in-house businesses (led by electronics), recognition of Tesna earnings, and the rapid growth of unlisted subsidiaries. A strengthening of shareholder return policy is also expected. Doosan Corp shares are currently trading at a 72% discount to NAV.
Preparing to leap forward again
With the sale of assets and businesses, Doosan Corp and Doosan Enerbility (formerly Doosan Heavy Industries & Construction) have successfully addressed their liquidity issues. Backed by such affiliates as Doosan Enerbility, Doosan Fuel Cell, and Doosan Bobcat, Doosan Corp is expected to pave a path towards growth centering on next-gen energy, machine, and semiconductor businesses.
At the in-house electro-materials business, both profitability and earnings growth are being enhanced by an increasing portion of high value-added products.
Going forward, earnings are also to improve at new businesses (eg, 5G, EV, and energy-related materials). In addition, a gradual beefing-up of shareholder return policy is expected on: 1) recognition of Tesna (39.8% stake) in consolidated earnings; and 2) turns to profit at unlisted subsidiaries (DLS (logistics), Robotics (collaborative robots), and DMI (drone fuel cells/power packs)).
While adhering to a Buy rating, we lower our TP on Doosan Corp from W155,000 to W120,000 to reflect: 1) a change in calculation base year (2022E → 2023F); and 2) adjustments in the share prices of listed subsidiaries. Doosan Corp shares are currently trading at a 72% discount to NAV.
2Q22 review: In-house earnings still healthy despite deterioration of business environment
Doosan Corp posted 2Q22 sales of W4.3tn (+45% y-y) and OP of W367.9bn (+40% y-y). For in-house businesses (including electronics and overseas ICT subsidiaries), 2Q22 OP arrived at W45.3bn (+6% y-y).
At the in-house electronics domain, rising costs (related to commodities, SG&A, and logistics) were offset by both robust sales growth for high value-added products for semiconductors and 5G networks and favorable forex effects. For unlisted subsidiaries (DLS, Robotics, and DMI), 2Q22 sales totaled W44bn (+121% y-y), helped by sunny business environments in target markets.
For 3Q22, in-house business OP is projected at W37.4bn (+36% y-y, based on 2022 business structure). We expect the firm to touch BEP, as DLS and Robotics look set to continue their brisk earnings growth.