SEOUL, KOREA - Earnings growth to continue in 2Q13 We forecast Doosan will post 2Q13 OP of W40.5bn, up 18% QoQ and up 64% YoY, given solid growth at intrinsic businesses, such as electronics and Mottrol. Specifically, electronics should post an OP of W20.5bn, up 5% QoQ, and Mottrol W5bn, up 53% QoQ, as a turnaround continues on a strong partnership with Chinese vendors. Meanwhile, Glonet should post OP of W10.5bn, up 82% QoQ, and the communications division W4.5bn, up 24% QoQ, on solid top-line growth. Backed by all these growth factors, in-house OP should reach W145.2bn, up 51% YoY, in 2013.
Asset disposals to accelerate in 2H13 In 2H13, Doosan should accelerate disposing non-core assets. First, the KAI
privatization (5% stake, current value W140.9bn) should resume given the government’s commitment. Second, the KFC sale should proceed as price negotiations wind down. Third, affiliates scheduled to be transferred to DIP Holdings, such as Doosan DTS (defense company), should be disposed by Jun 2014, and either Doosan or financial investors can exercise drag along rights. If these disposals finish, funding over W500bn to secure growth engines and reinforce shareholder-friendly policies should be generated.
Maintain positive outlook Doosan shares have picked up from W115,000 to W138,000, and we maintain a positive outlook. First, management should maintain efforts to reinforce shareholder value on solid cash flows, including May’s W30bn treasury share buyback, limiting share downside. Second, intrinsic earnings should trend up at most divisions, such as electronics and Mottrol. Third, liquidity concerns at Doosan E&C should ease on substantial capital support from the Doosan group, and Doosan Infracore should gradually recover on China’s stimulatory efforts.
*Source: Korea Investment & Securities Co.
