Sector Top Pick
The authors are analysts of Shinhan Investment Corp. They can be reached at ym.ko@shinhan.com and doyeon@shinhan.com, respectively. -- Ed.
2Q22 review: Earnings surprise led by solid margin gains
Jusung Engineering posted operating profit of KRW34.6bn (+187% YoY) on sales of KRW119bn (+65% YoY) for 2Q22, beating the consensus estimate of KRW23bn. The company likely generated 60-70% of sales from domestic operations and 30-40% from overseas. Operating margin came in higher than projected thanks to increased contribution from overseas sales. Order backlog may have decreased slightly QoQ due to some purchase order (PO) delays, but should turn upward in 3Q given the resumption of order placements from July.
2022 outlook: Additional momentum despite uncertainty
For 2022, we forecast sales at KRW447.9bn (+19% YoY) and operating profit at KRW125.1bn (+22% YoY). Slowing semiconductor demand and increasing lead time for foreign equipment orders may result in postponement of equipment deliveries in 2H22. Concerns also remain over uncertain memory market conditions and scale of investments in equipment in 2023. However, even based on conservative estimates taking account of the uncertainty, Jusung Engineering is expected to outshine its peers in terms of earnings for the following two reasons.
1) Equipment for high-k capacitor fabrication process: The company supplies equipment for the high-k capacitor fabrication process, which is key to migration to finer processes. The clients need to have the equipment delivered and set up as per their original schedule. A portion of sales may be deferred to 2H22, but the amount will likely be smaller vs. peers.
2) Solar cell equipment: The company is known to be steadily adding new clients in Europe. Such efforts may bear fruit with new order intake of more than KRW100bn in 2H22, which has yet to be included in our 2023 earnings forecasts. Orders for solar cell equipment, once confirmed, should help offset the slowdown in semiconductor equipment sales, and thereby raising visibility of earnings growth next year.
Stronger performance expected for 2H22, top pick status retained
Uncertainty remains over IT equipment earnings until 2023. Shares may be weighed down by concerns over semiconductor market conditions in the near term, but Jusung Engineering is likely to record stronger quarterly earnings than peers in 2H22. We find shares attractive at current levels (2022F PER of 8.3x) even with a downward revision of our earnings forecasts. We retain Jusung Engineering as our sector top pick and keep our target price unchanged at KRW22,000 (target PER of 10.3x).