[Click eStock] "Hyundai Doosan Infracore, Slow Recovery in Chinese Market... More Time Needed"

4Q Operating Profit Expected at 27 Billion Won... About 14% Below Consensus
Strong Performance in Emerging and Developed Markets... Weak Recovery in Chinese Market

[Asia Economy Reporter Minwoo Lee] Hyundai Doosan Infracore is expected to post earnings for the fourth quarter of last year that fall short of market expectations. This is interpreted as the strong performance in advanced and emerging markets still being insufficient to offset the sluggishness in the Chinese market.

On the 25th, Samsung Securities maintained its investment rating of 'Hold' for Hyundai Doosan Infracore and lowered the target stock price by 25.3% to 7,400 KRW. The closing price the previous day was 6,260 KRW.

The fourth quarter earnings of last year were forecasted at sales of 1.02 trillion KRW and operating profit of 27 billion KRW, representing increases of 19.8% and 74.5% respectively compared to the same period the previous year. Nevertheless, the operating profit fell short of the market consensus of 32 billion KRW by 13.9%. Although sales performance in advanced and emerging markets has repeatedly exceeded expectations and the engine division continues to rebound, it was insufficient to offset the decline in profitability in the Chinese region.

Youngsoo Han, a researcher at Samsung Securities, explained, "This indicates that Hyundai Doosan Infracore previously generated excellent profitability in the Chinese market," adding, "Moreover, the supply chain including logistics has not yet normalized, and there is a possibility that one-time costs occurred during the company split and the incorporation into Hyundai Heavy Industries Group."

It is expected that more time is needed before conditions in the Chinese market improve. First, the recovery speed of demand in the Chinese market is slower than expected. Researcher Han analyzed, "Even excluding the recent macroeconomic situation, China is currently in a state where it is difficult to gain momentum for the time being due to the high base in the first half of last year," and "Although excavator sales in the Chinese market in the second half of last year decreased by 41% compared to the same period the previous year, the annual decrease was only 6%, indicating that sales in the first half were strong."

Another cause is the lack of financial information. Researcher Han stated, "Although this was somewhat alleviated with the publication of the first quarterly report after the split, due to the large-scale capital increase in the fourth quarter, it is necessary to wait for the annual business report to verify the financial status and accounting treatment related to corporate tax."