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Doosan Bobcat: 2022 OP to Reach KRW1tn with Forex Being the Only Variable




The authors are analysts of Shinhan Securities. They can be reached at idh@shinhan.com and jiunmyoung@shinhan.com, respectively. — Ed.

4Q22 preview: Decent earnings considering forex effects

Doosan Bobcat’s operating profit is expected to have reached USD190mn (+45.7% YoY) on sales of USD1.72bn (+14.7% YoY) in 4Q22. KRW-denominated profit of KRW239.2bn (+55.0% YoY) likely missed the consensus estimate of KRW273.2bn. The average USD/KRW rate stood at KRW1,263, down by 12.2% from KRW1,439 in 3Q22. We believe the consensus does not price in a steep drop in the forex rate. USD-denominated earnings should be in line with market expectations.

The North American subsidiary should have seen sales continue to expand to USD1.09bn (+17.6%YoY), with the impact of slowing housing market conditions offset by infrastructure investments and solid demand for grounds maintenance equipment (GME). Industrial vehicle sales likely came in at USD270mn (+12.1% YoY), driven by an increase in demand amid easing supply chain constraints and rising reshoring investments in North America.

2022 full-year OP to pass the KRW1tr mark

Doosan Bobcat’s small construction equipment business has enjoyed steady growth on replacement demand in developed markets. The company had worked on maintaining market share based on its strong brand power built up starting with the launch of skid-steer loaders in 1960. Since the mid-2010s,it has set its focus on top-line expansion by improving engine efficiency (G2 engines), investment in GME, forays into emerging markets, acquisition of the industrial vehicle business, and capacity additions in the US.

Fully-year operating profit is expected to have passed the KRW1tr mark for the first time in 2022 thanks to pent-up demand from the COVID-19 pandemic, ASP hikes, and top-line growth. Earnings are forecast to decrease slightly this year due to forex rate declines and marketing spend increases, but still stay high compared to the past.

Beneficiary of US infrastructure investments

We retain our BUY rating on Doosan Bobcat for a target price of KRW45,000. The company’s 2022F PER is at a historical low of 6.9x. The shares have recently corrected by 20% from last year’s peak, weighed by concerns over the US housing market downturn and potential overhang from price return swap (PRS) contracts.

We believe the shares are severely undervalued, given that a decline in earnings should be limited with demand from the US infrastructure sector and top-line expansion sustained by reinvestments.

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