[Into the Stock] Doosan Fuel Cell's Sharp Decline 'Boritgogae'... Is Now a Buying 'Bumper Crop?'

[Asia Economy Reporter Lee Seon-ae] The stock price of Doosan Fuel Cell, which became a 'short-selling overheated stock' immediately after the resumption of short selling, has been struggling to gain momentum. The stock closed at 45,100 KRW on April 30, but on the day short selling resumed, May 3, it closed at 40,150 KRW, and on the following day, May 4, it closed at 39,250 KRW. Since then, the stock price has been in a sideways trend and has now barely risen above the 40,000 KRW mark. Compared to the closing price of 56,300 KRW on January 4, the first trading day of this year, it has practically plummeted. Especially in February, the stock price rose to 60,400 KRW, so it is no exaggeration to say that it has lost steam compared to the current price. The securities industry views this as the 'bitter patch' for Doosan Fuel Cell's stock price. In other words, this can also be interpreted as a buying opportunity.

◆New 'Buy' Report and Bright Stock Outlook

A new report on Doosan Fuel Cell has been released. On the 25th, DS Investment & Securities issued a new 'Buy (New)' rating report on Doosan Fuel Cell, stating, "After the bitter patch, a bountiful year will come," and set a target price of 62,500 KRW. Compared to the closing price of 43,000 KRW on the 27th, this implies an additional upside potential of 45.3%.

Researcher Kim Seung-hoe of DS Investment & Securities analyzed, "Unlike global peers that continue to post losses, Doosan Fuel Cell generates stable profits through power generation fuel cell production and long-term service agreements (LTSA). Going forward, it is expected to be the biggest beneficiary of hydrogen market activation as a global fuel cell leader, capable of handling technologies including Phosphoric Acid Fuel Cells (PAFC), Solid Oxide Fuel Cells (SOFC), and Polymer Electrolyte Membrane Fuel Cells (PEMFC)."

He assessed that the recent stock price decline reflects concerns about weak first-half earnings following the Q1 earnings announcement. In particular, with new orders in Q1 amounting to only 6MW, doubts have been raised about achieving the annual order guidance of 142MW. However, given the government's strong commitment to fostering the hydrogen economy and the planned introduction of the Hydrogen Power Obligation System (HPS), large-scale orders for power generation fuel cells are expected from the second half of the year after the order gap during the policy implementation phase in the first half. Researcher Kim emphasized, "We conservatively assume domestic power generation fuel cell orders of about 190MW this year, with Doosan Fuel Cell securing about 70% of that, achieving the annual order guidance. Now is the time to focus on the long-term high growth potential driven by policy benefits rather than short-term earnings weakness."

The target price of 62,500 KRW suggested by DS Investment & Securities is the lowest among all securities firms' reports over the past six months, along with Samsung Securities' 62,000 KRW announced on the 29th of last month. This is 10.8% lower than the overall average target price of 70,045 KRW, indicating a conservative approach to Doosan Fuel Cell's stock price.

An industry insider explained, "The average target price of 70,045 KRW from all securities firms over the past six months is a 29.1% increase compared to the previous six months' average target price of 54,250 KRW. Taken together, this shows that securities firms' overall analysis of Doosan Fuel Cell's future stock price is optimistic."

◆Long-term Growth is a 'Bountiful Year'

According to the HPS introduction plan approved at the 2nd Hydrogen Economy Committee in October last year, the government expects more than 25 trillion KRW in new investments in power generation fuel cells over the next 20 years. The HPS was introduced to complement the Renewable Portfolio Standard (RPS), which currently forms the basis of the renewable energy supply system and is designed mainly around existing renewable energies such as solar and wind power. The existing RPS system showed limitations in promoting power generation fuel cells suitable for long-term fixed contracts due to revenue uncertainty linked to Renewable Energy Certificates (REC) weighting.

With the introduction of HPS, fuel cells are separated from the RPS system, establishing a foundation to supply volumes stably without competition with existing renewable energies. The mandatory volume for power generation fuel cells will be set by the Hydrogen Committee after establishing mid-to-long-term targets and annual supply plans in the 'Basic Hydrogen Economy Plan' under the Hydrogen Act. The obligation to fulfill HPS is being considered for existing RPS obligated parties or sellers such as Korea Electric Power Corporation. In particular, the government plans to decide the obligated purchasers by reviewing incentives for cost reduction and the possibility of long-term fixed contracts linked to the electricity market. Since the government amended the existing Hydrogen Act in 2021 and plans to implement HPS from 2022, orders for power generation fuel cells responding to HPS introduction are expected from the third quarter of this year.

Researcher Jung Hye-jung of KB Securities explained, "Although Doosan Fuel Cell's Q1 new orders are only 4.2% of the target, the existing annual new order guidance of 142MW is maintained. This is because there has been seasonality with orders concentrated in the second half due to budget execution schedules of power plants, and the delay in related orders due to the detailed contents of the HPS system not yet being announced also implies order concentration in the second half."

She added, "Doosan Fuel Cell plans to expand domestic production capacity from the current 90MW to 130MW starting in the second half, aligning the timing of increased orders and production capacity expansion to maximize benefits. In the mid-to-long term, it is developing Tri-gen models for hydrogen charging stations (targeting commercialization in 2022), LPG/NG dual hydrogen fuel cell models, and pursuing various new businesses such as fuel cells for ships, fuel cells for water electrolysis, and power packs for commercial vehicles."

◆Sales Expected to Surpass 1 Trillion KRW in 2023

DS Investment & Securities estimates that Doosan Fuel Cell's performance this year will record sales of 528.1 billion KRW (+14.3% YoY) and operating profit of 34.1 billion KRW (+14.7% YoY).

As of the end of Q1, the LTSA order backlog amounts to 2.6 trillion KRW, and if the scheduled sales of fuel cell main equipment are completed this year, the LTSA order backlog is expected to exceed 3 trillion KRW by year-end. Doosan Fuel Cell's LTSA typically lasts 20 years, so based on simple calculations, it is expected to secure annual sales of about 150 billion KRW.

To achieve the government's target of installing 8GW of power generation fuel cells domestically by 2040 after the introduction of HPS, annual orders of more than 380MW must be placed starting next year. Doosan Fuel Cell also expects a domestic power generation fuel cell market of about 400MW in 2023.

Considering Doosan Fuel Cell's current market share, domestic orders of about 270MW annually (assuming a 70% market share) are possible. With the acceleration of global eco-friendly policies for carbon neutrality and additional overseas orders for power generation fuel cells, annual orders exceeding 300MW can also be expected.

Along with the expansion of the domestic power generation market, Doosan Fuel Cell signed a contract to introduce SOFC technology from UK-based Ceres Power for overseas markets and various application adaptations. In addition to PAFC, it plans to expand SOFC facilities to secure production capacity of 310MW in 2022 and 450MW within three years, preparing for increased domestic and overseas orders for power generation fuel cells.

Accordingly, Doosan Fuel Cell's sales are expected to surpass 1 trillion KRW in 2023. Researcher Kim said, "Doosan Fuel Cell's sales in 2023 are estimated at 1.3422 trillion KRW, with operating profit of 135.7 billion KRW. This excludes new business sales such as ship fuel cells prepared with SOFC technology and PEM water electrolysis facilities. As government policies progress, earnings visibility will improve."