Insun ENT: Income enhancement offers a good buying opportunity
The author is an analyst for NH Investment & Securities. He can be contacted at [email protected] – Ed.
Insun ENT’s 1Q21 results missed our estimates and our consensus. However, ASP landfills for construction waste are expected to increase in 2H21, supported by the increase in housing start-up areas and improving conditions in the construction sector. In addition, the OPM in the landfill area of the company must increase due to an imbalance between supply and demand and a 48% increase (as of January 2022) in dumping fees. discharge by the SLC.
Despite slowing earnings, growth expectations remain high
Insun ENT’s consolidated revenue and PO in 1Q21 was stable at 53.7 billion won (+ 4.3% yoy) and 9.5 billion won (-23.4% yoy). one year), respectively. The numbers missed our estimates and our consensus on sharper-than-expected declines in its construction waste disposal and landfill PSAs. It should be noted that the company’s waste disposal charges are generally at their lowest point of the year in the first quarter due to seasonality. At the same time, the decline in the landfill of ASPs is a result of increased competition in the market and is likely to continue to have a negative impact on OPM throughout this year. In addition, the 2021 results of Insun ENT’s incineration business are expected to decline slightly (yy), with orders for its subsidiary Younghung Industry Environment currently slowing as the subsidiary prepares for a planned capacity expansion project. ‘next year.
However, we believe that these negatives should be seen as part of a transition process aimed at paving the way for significant profit improvement in 2022 and further growth in the longer term for the following three reasons. First, Insun ENT construction waste disposal ASP is expected to increase throughout 2:21 in response to the expansion of new housing start-up areas. Second, the company’s landfill ASP is expected to increase alongside a 48% hike in SLC landfill fees of 48% from January next year. Currently at around 160,000 W / tonne, the PSA for the landfill of the company’s general and designated waste is expected to rise to around 190,000 W / t next year. Third and finally, Insun ENT’s incineration business is expected to show an OPM of over 30% after the completion of the planned capacity expansion project in 2022.
We have adjusted our profit estimates downward for 2021, now forecasting sales of W 234.1 billion (+ 12.2% year-on-year) and a PO of W 50.1 billion (+ 2.3% over one year). That said, sales and operations are expected to rebound to 262.3 billion won (+ 12.1% yoy) and 59.4 billion won (+ 18.5% yoy), respectively, in 2022. So, believing that the temporary dip in the company’s profits will only last until 1H21, we are sticking to a buy note.
OPM in scrapped car recycling company to bounce back on rising scrap metal prices
The OPM of the car recycling company at Insun ENT is expected to improve thanks to the skyrocketing price of scrap metal (280 W / kg in January 2020 → 420 W / kg in January 2021). It should be noted that the subsidiary of Insun Motors company (100% stake) is the largest scrap automobile player in Korea, with a processing capacity of 240,000 tons of scrap cars per year. Although the subsidiary made no contribution in terms of PO last year, its share of the overall PO is expected to reach 7% this year.