[Click eStock] "Doosan Heavy Industries Overcame the Crisis, Showed Potential"

1Q Operating Profit 372.1 Billion Won... Up 559% YoY
Strong Potential from Traditional Power to Next-Gen Hydrogen and Wind Energy

On the 27th, the Doosan Tower building in Dongdaemun-gu, Seoul, is visible as the government decided to inject 1.6 trillion won into Doosan Heavy Industries, which is experiencing financial difficulties, through the Korea Development Bank and the Export-Import Bank of Korea. Photo by Kang Jin-hyung aymsdream@

[Asia Economy Reporter Minwoo Lee] Doosan Heavy Industries & Construction showed improved performance in the first quarter of this year compared to last year, indicating that the company has overcome a critical phase. As the leading domestic power generation equipment company, it is analyzed that growth potential still remains.

On the 10th, Daishin Securities evaluated Doosan Heavy Industries & Construction's first-quarter performance in this way. Doosan Heavy Industries & Construction recorded consolidated sales of 4.0046 trillion KRW and operating profit of 372.1 billion KRW in the first quarter of this year. This represents an increase of 4% and 559%, respectively, compared to the same period last year. The separate performance of the heavy industries division and the combined first-quarter performance of overseas subsidiaries showed sales of 1.223 trillion KRW and operating profit of 58.5 billion KRW. Sales decreased by 14% year-on-year, but operating losses turned into profits. This was due to the effect of fixed cost reduction despite the sales decline.

Non-operating income included a valuation gain of 135.6 billion KRW from Doosan Bobcat's Price Return Swap (PRS). Net profit was 97 billion KRW, turning positive for the first time in 11 quarters since the second quarter of 2018. New orders amounted to 1.3218 trillion KRW, and order backlog was 14.4076 trillion KRW, increasing by 84% and 4%, respectively, compared to the first quarter of last year.

Daishin Securities assessed that Doosan Heavy Industries & Construction has passed the critical phase. The company’s management plan for this year sets sales of 5.8976 trillion KRW and operating profit of 221.2 billion KRW for the heavy industries division. The goal is to increase sales by 11% year-on-year and turn operating losses into profits. Last year, 183.7 billion KRW in retirement benefits were recorded, and a turnaround to profitability is expected due to increased sales and improved cost ratio. In particular, about 92% (approximately 5.4 trillion KRW) of the sales target is expected to come from the existing order backlog, and it is analyzed that the company will be able to maintain a profit trend even with annual sales around 5 trillion KRW through fixed cost reduction. Researcher Dongheon Lee of Daishin Securities explained, "A smooth financial structure improvement flow is expected through restructuring, the sale of Club Mow, receipt of Doosan Fuel Cell shares, capital increase, and sale of Doosan Infracore."

As the leading company in domestic power generation equipment, it is viewed that potential still remains. This is because it covers traditional power generation such as nuclear power, coal-fired power, and liquefied natural gas (LNG) combined cycle power, as well as new power generation businesses including wind power, hydrogen, next-generation gas turbines, and small modular reactors. Researcher Lee said, "The company holds all lineups including large, small, and decommissioning nuclear power projects, has completed gas turbine development and is in the final stage of demonstration, and new businesses such as Korean-style wind turbines and hydrogen fuel cells will steadily unfold," adding, "It is expected to repay more than 1.5 trillion KRW out of about 2.8 trillion KRW in loans from the Korea Development Bank within this year."

Meanwhile, Daishin Securities did not provide either an investment opinion or target price for Doosan Heavy Industries & Construction. The closing price on the previous trading day was 12,650 KRW.