Doosan Bobcat: Concerns Over U.S. Housing Market Excessive

Doosan Bobcat: Concerns Over U.S. Housing Market Excessive

Roger Pettingell Sarasota Real Estate

The author is an analyst of KB Securities. He can be reached at — Ed.

Maintain BUY; cut target price to KRW42,500   

We cut our 12m fwd TP by 15% to KRW42,500 (12m fwd BVPS x 0.91x target P/B). Our revisions to 1y monetary stabilization bond (risk-free rate), 30y KTB yield (TGR) and beta outweigh the impact of upward revisions to earnings estimates. The stock holds 43.6% upside (48.0% incl. dividend yield) given the recent price decline, thus we maintain BUY. 

Concerns over U.S. housing market slowdown excessive       

Since May, the stock has declined 28% (vs. KOSPI -11.5%). Concern over a slowing U.S. housing market—the company’s major market—contributed to the decline. The U.S. 30y mortgage rate surged to 5.10% at end-May (vs. 3.11% at end-2021) and nos. of housing permits/construction starts for new U.S. privately owned homes have slowed. We believe the stock price decline is excessive, however, as only ~20% of revenue comes from construction work (incl. housing), with the remaining related to a wide range of downstream industries (e.g., agriculture, civil engineering, stockbreeding, logistics). 

Expect interim DPS of KRW600 (interim div. yield of 2.0%)   

Interim dividend payments are set to resume Jun 30, ending a brief suspension due to the pandemic. We estimate total annual cash dividend of KRW1,300 (4.4% div. yield; incl. KRW600 interim DPS, KRW700 period-end div.). Amid current economic turbulence, we believe the high, stable dividend offers downward stock price support. 

Expect 2Q22 earnings surprise 

We forecast 2Q22 K-IFRS consolidated revenue/OP at KRW1.82tn (+41.6% YoY)/KRW200.8bn (+43.3% YoY; 11.0% OPM), which is far higher than OP consensus of KRW182.5bn. Robust demand in major markets (e.g., Americas, Europe) has allowed for a smooth pass through of costs to product prices. Also, an increase in KRW/USD rate (1,210.8 at end-1Q22→1,299.0 on Jun 29) is likely to contribute to earnings improvement. 

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