Order Recovery Expected from 4Q22
The author is an analyst of NH Investment & Securities. He can be reached at ys.jung@nhqv.com -- Ed.
Weighed upon by sluggish orders in the near term, CS Wind recorded disappointing 2Q22 sales. However, the firm’s mid/long-term earnings growth visibility is rising as government policy support ramps up in key markets such as the US and Europe. An orders recovery is expected from 4Q22.
Sluggish short-term orders continue, but mid/long-term growth visibility is strengthening on policy effects
We maintain a Buy rating and TP of W74,000 on CS Wind. Although we lower our 2022 sales and OP estimates by 8% and 16%, respectively, we hike our 2023 and 2024 sales forecasts by 6% and OP projections by 1% to reflect prospects for a mid/long-term uptick in orders.
Although short-term orders sluggishness is likely to continue through 3Q22, rapid top-line growth is anticipated in 2023 on the resolving of policy uncertainties (mainly in the US and Europe).
Sales sluggish in 2Q22 due to logistics disruptions, but orders to recover from 4Q22
CS Wind posted 2Q22 sales of W327bn (+17.2% y-y) and OP of W17.9bn (-36.6% y-y; OPM of 5.5%), with sales falling short of our estimate but OP slightly exceeding both our forecast and consensus. Contributing to the sales estimate miss were: 1) production challenges due to supply disruptions for raw materials; and 2) sluggish wind tower manufacturing due to tepid order intake at subsidiaries in Vietnam and Malaysia, stemming from heavy transportation-related cost burden at clients. Meanwhile, profitability improved q-q on the back of favorable exchange rates.
As of end-Jun 2022, new orders amounted to US$575mn (44.2% of the annual order target of US$1.3bn). In the global wind power market, orders have remained weak amid rising interest rates and increased installation costs. However, orders are expected to improve from 4Q22.
Although sluggish production at the Vietnam and Malaysia subsidiaries looks inevitable in 3Q22, sales should rebound with some time lag thanks to a likely recovery of orders in 2H22. Subsidiaries in Turkey (where orders are on the rise) and the US (where output for new customer GE is increasing) are predicted to drive top-line growth this year.