Korea Morning Focus
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November 13, 2019 Korea Morning Focus Company News & Analysis Major Indices Close Chg Chg (%) KOGAS (036460/Buy/TP: W60,000) KOSPI 2,140.92 16.83 0.79 Headwinds are beginning to ease KOSPI 200 283.65 2.80 1.00 KOSDAQ 665.14 3.77 0.57 ICD (040910/Buy/TP: W22,000) Raise TP 3Q19 review: Earnings surprise Turnover ('000 shares, Wbn) Volume Value Shinsegae (004170/Buy/TP: W360,000) KOSPI 601,779 5,744 3Q19 review: Department stores save the day KOSPI 200 64,287 2,637 KOSDAQ 1,064,995 4,618 Netmarble (251270/Buy/TP: W127,000) Market Cap (Wbn) Biding time Value KOSPI 1,436,297 KOSDAQ 235,619 KOSPI Turnover (Wbn) Buy Sell Net Foreign 1,113 1,152 -39 Institutional 937 952 -15 Retail 3,631 3,607 24 KOSDAQ Turnover (Wbn) Buy Sell Net Foreign 459 451 7 Institutional 214 175 39 Retail 3,917 3,960 -44 Program Buy / Sell (Wbn) Buy Sell Net KOSPI 1,130 1,151 -21 KOSDAQ 428 426 2 Advances & Declines Advances Declines Unchanged KOSPI 426 382 96 KOSDAQ 642 558 128 KOSPI Top 5 Most Active Stocks by Value (Wbn) Price (W) Chg (W) Value Asiana Airlines 6,580 750 587 AirBusan 9,320 2,150 485 Namsun Aluminum 4,965 -175 340 Samsung Electronics 52,600 1,000 318 Asiana IDT 30,550 1,150 318 KOSDAQ Top 5 Most Active Stocks by Value (Wbn) Price (W) Chg (W) Value HLB 142,200 2,800 225 CMG Pharm. 3,420 200 177 CUBE Ent. 4,820 -260 135 OSUNG Advanced 2,700 140 135 Materials Kukil Paper 5,770 220 117 Note: As of November 12, 2019 This document is a summary of a report prepared by Mirae Asset Daewoo Co., Ltd. (“Mirae Asset Daewoo”) and published on our website. Please review the compliance notices contained in the original report. Information and opinions contained herein have been compiled in good faith from sources deemed to be reliable. However, the information has not been independently verified. Mirae Asset Daewoo makes no guarantee, representation or warranty, express or implied, as to the fairness, accuracy or completeness of the information and opinions contained in this document. Mirae Asset Daewoo accepts no responsibility or liability whatsoever for any loss arising from the use of this document or its contents or otherwise arising in connection therewith. Information and opinions contained herein are subject to change without notice. This document is for informational purposes only. It is not and should not be construed as an offer or solicitation of an offer to purchase or sell any securities or other financial instruments. This document may not be reproduced, further distributed or published in whole or in part for any purpose. KOGAS (036460 KS) Headwinds are beginning to ease Utility 3Q19 review: Operating loss of W160bn, in line with consensus Results Comment For 3Q19, KOGAS announced revenue of W4.52tr (-4.4% YoY). Gas sales volume slipped November 13, 2019 4.3% YoY in city gas and 3.9% YoY in power generation, hurt by milder-than-usual weather and changes in the power generation mix. Revenue was further weighed down by an ASP fall (-6.0% YoY) in power generation-use gas due to lower oil prices. E&P revenue remained stagnant. (Maintain) Buy At the operating level, the company reported a loss of W160bn, in line with the consensus (loss of W161.7bn). While the company fell into the red due to seasonally Target Price (12M, W) 60,000 weak gas demand, we note that the operating loss decreased YoY (vs. loss of W172.2bn in 3Q18) as a result of the increased collection of supply costs following adjustments Share Price (11/12/19, W) 40,550 earlier in the year. E&P operating profit contracted 7.7% YoY to W56bn, affected by the Prelude project, which is in the early stages of production. Excluding this, we estimate Expected Return 48% E&P operating profit actually increased more than 20% YoY. The company also recorded a net loss attributable to controlling interests of W226.5bn, mainly due to seasonality. On a YoY basis, net loss narrowed by W58.6bn. Parent net OP (19F, Wbn) 1,395 loss expanded YoY to W349.7bn (from a loss of W320.4bn in 3Q18), pressured by F/X- Consensus OP (19F, Wbn) 1,400 translation losses. EPS Growth (19F, %) 7.6 Headwinds are beginning to ease Market EPS Growth (19F, %) -32.0 P/E (19F, x) 6.8 1) E&P: We estimate the Australian Prelude project (which has been the biggest drag Market P/E (19F, x) 14.3 on overseas E&P earnings) recorded a loss of around W19bn in 3Q19. However, we KOSPI 2,140.92 expect the project to near breakeven in 4Q19 on the back of increased production. And given the ongoing profit growth of major projects, including the Myanmar gas field, Market Cap (Wbn) 3,743 Gladstone LNG, and Zubair, earnings momentum should strengthen in 4Q19. Shares Outstanding (mn) 92 Free Float (%) 45.0 2) F/X: A rise of 10 in the US$/W rate generally causes a W20bn decline in parent net Foreign Ownership (%) 12.7 profit, which serves as the basis for the company’s dividends. The recent easing of the Beta (12M) 0.75 won’s depreciation should lead to F/X-translation gains, reducing losses by more than 52-Week Low 37,150 half for the full year. 52-Week High 54,700 3) Power generation market: One of the main concerns surrounding KOGAS is its lack (%) 1M 6M 12M of price competitiveness in the power generation-use gas market. The price of KOGAS’s power generation gas supplies is believed to be more than 30% higher than those of Absolute 3.7 -1.3 -23.1 direct gas buyers. That said, we expect the gap to narrow, as spot gas prices have Relative -1.0 -2.9 -25.2 recently been picking up heading into the winter season. Once the individual pricing 120 KOGAS KOSPI system is fully implemented, we think KOGAS will be able to gradually restore its 110 market position. 100 90 Maintain Buy and TP of W60,000 80 We maintain Buy on KOGAS with a target price of W60,000. The stock is trading at a P/B 70 of 0.4x, weighed down by uncertainties related to E&P margins and won depreciation. 60 11.18 3.19 7.19 11.19 However, we believe stronger earnings momentum in 4Q19 and expectations on dividend hikes could set the stage for a rebound in share prices. Mirae Asset Daewoo Co., Ltd. [Transport/Energy] FY (Dec.) 12/16 12/17 12/18 12/19F 12/20F 12/21F Revenue (Wbn) 21,108 22,172 26,185 25,456 24,590 23,819 Jay JH Ryu +822-3774-1738 OP (Wbn) 998 1,035 1,277 1,395 1,455 1,472 [email protected] OP margin (%) 4.7 4.7 4.9 5.5 5.9 6.2 NP (Wbn) -613 -1,205 509 548 686 677 EPS (W) -6,641 -13,055 5,518 5,939 7,431 7,331 ROE (%) -6.3 -14.0 6.4 6.5 7.7 7.1 P/E (x) - - 8.7 6.8 5.5 5.5 P/B (x) 0.5 0.5 0.5 0.4 0.4 0.4 Dividend yield (%) 0.0 0.0 2.8 3.5 4.2 4.2 Note: All figures are based on consolidated K-IFRS; NP refers to net profit attributable to controlling interests Source: Company data, Mirae Asset Daewoo Research estimates Analysts who prepared this report are registered as research analysts in Korea but not in any other jurisdiction, including the U.S. PLEASE SEE ANALYST CERTIFICATIONS AND IMPORTANT DISCLOSURES & DISCLAIMERS IN APPENDIX 1 AT THE END OF REPORT. ICD (040910 KQ) 3Q19 review: Earnings surprise Technology 3Q19 review: Earnings surprise Results Comment For 3Q19, ICD reported revenue of W31.3bn (+167.7% QoQ, -29.7% YoY) and operating November 13, 2019 profit of W8.2bn (turning to profit QoQ, +89.8% YoY). Revenue was in line with our estimate, but operating profit handily beat our expectation (W0.3bn), with an OP margin of 26.3%. The strong margins were driven by: 1) a higher mix of parts revenue and 2) won (Maintain) Buy depreciation against the dollar. We believe 3Q19 revenue was entirely from parts, including electrostatic chucks (ESC) and renovation/improvements, and we estimate Target Price (12M, W) ▲ 22,000 parts margins were over 25%. Deluge of purchase orders on the horizon; TOE capacity conversion to Share Price (11/12/19, W) 16,200 continue Expected Return 36% We see a large number of purchase orders through early 2020, including orders for: 1) Visionox’s two new lines (30,000 sheets/month; posted on China Bidding); 2) CSOT’s T4 line (25,000-30,000 sheets/month); 3) dry etchers for Samsung Display’s conversion to OP (19F, Wbn) 16 Y-OCTA; and 4) evaporators and dry etchers for Samsung Display’s QD-OLED. Consensus OP (19F, Wbn) 11 We also note ongoing investments in touch-on-encap (TOE) technology by global panel EPS Growth (19F, %) -52.8 makers. Apple is expected to adopt Y-OCTA panels for its iPhone next year, and LG Market EPS Growth (19F, %) -32.0 Display and Chinese panel makers are anticipated to convert to TOE technology and P/E (19F, x) 19.2 make related investments. Currently, we believe one of ICD’s dry etchers is being used Market P/E (19F, x) 14.3 for the Y-OCTA process.