In this briefing:
- Doosan Bobcat – Negative on the North American Housing Market Turning Downwards
- HDC Holdings Holdco Trade: Status Update & Recommended Action
- Revisiting the Renewable Energy Space
1. Doosan Bobcat – Negative on the North American Housing Market Turning Downwards
We believe that the consensus earnings estimates of Doosan Bobcat Inc (241560 KS) are likely to revised down by 10-15% in the next 6-12 months, negatively impacted by the faster than expected downturn in the North American housing construction market. Currently, Doosan Bobcat stock price is at 32,900 won. We expect 15% or more downside risk on this stock over the next 6-12 months.
The US is the biggest market for the company. The US housing starts is an important indicator for the company since the US housing starts has a big impact on the demand for compact construction equipment. You could see from the charts below that US housing starts has been on a strong rebound since 2009. However, since early part of this year, there are signs that the US housing starts is beginning to soften and turn down.
Home prices are starting to decline in the US – Most recently in 3Q18, the median sales price of houses sold in the US was $325,700, down 3.6% from the peak of $337,900 in 4Q17. The list of cities/regions with recent declining home prices in North America are as follows: Vancouver (Canada), Manhattan, NYC, Seattle, WA, San Francisco, CA, San Diego, CA, Toronto (Canada), and Los Angeles, CA.
2. HDC Holdings Holdco Trade: Status Update & Recommended Action
- HDC Holdings (012630 KS) / HDC-OP (294870 KS) stub trade yield is now 0.38%. Price ratio is still below -1 σ. It is close to yearly low. Holdco discount now stands at 47.92% to NAV.
- The major shareholder Chung Mong-kyu bought an additional 0.63% stake for ₩16.1bil from Dec 6~10. I didn’t expect it. But it now seems that the owner buying factor is truly over.
- I’d wait a bit longer to capitalize on this newly developed situation. Price ratio is close to yearly low. Yearend dividend factor should be helping the situation.
3. Revisiting the Renewable Energy Space
We checked on two stocks today that are well-known in the renewable energy space, namely solar and wind power, to see how things were going. We may not be tree huggers ourselves, but it’s fair to say that sustainable investing is pretty big these days. Here’s some run-down.
- GUNKUL posting impressive earnings growth of 57% (normalized) on the back of a 30% revenue growth, and they’re still hoping to see another 25% revenue growth in 2019 as new projects in Japan and Thailand (floating panel) start operations soon.
- DEMCO also growing earnings 23% on the back of more modest revenue growth of just 6%, but management is far less confident on this front having faced issues with land reclamation rights and design changes.
- An interesting point in the visit was the fact that GUNKUL wants to establish a very large base of solar roofs by the time prices become competitive. Solar panel prices have fallen tenfold since they were first introduced in Thailand.