Moon-Biden summit boosting Doosan Heavy shares

By Kim Hyun-bin, Kim Yoo-chul

Investors are betting on Doosan Heavy Industries & Construction's (Doosan Heavy) transformation efforts and moves to improve its corporate soundness as the conglomerate is nearing the end of its restructuring process.

Doosan Heavy has been hit hard at home and abroad partly due to the government decision to phase out the construction of new nuclear reactors, citing their effects on the environment.

The administration's policy hit Doosan hard due to its dependence on the construction of nuclear power plants, therefore management switched its focus to exporting parts for small modular reactors (SMRs) to the United States, the Czech Republic, Canada and Jordan.

At the recent summit between President Moon Jae-in and U.S. President Joe Biden, the two leaders agreed to jointly promote SMR technology, raising expectations that Doosan's corporate restructuring will end with success.

Its share price, which recently dropped to as low as 2,200 won last year, closed at 32,000 June 7; and while a partial resumption of short-selling could limit a further run for the price, investors remain positive over their value.

“SMRs are viewed as ideal for countries that want to efficiently supply electricity, and as the U.S. will remain supportive of South Korea's moves to expand its presence in the SMR market, I would say Doosan will benefit a lot in both the terms of contract volume and share price,” a senior fund manager at Meritz Securities, said Wednesday. Doosan Heavy is the country's sole player in the sector which could guarantee on-time delivery and better pricing for its SMR clients.

Rising demand for wind turbines is cited as another positive factor, after Doosan Heavy recently secured a 190 billion won contract to be part of an offshore wind farm here. It will supply 18 power-generating turbines ― producing 5.56 megawatts each ― to the facility to be built off the country's southwestern resort island of Jeju by 2024.

“Doosan Heavy is set to see a major turnaround this year. We have no doubt about that,” Lee Sang-hun, an analyst at Hi Investment said. “Due to a low base effect and rate of cost to sales enhancement, the company is expected to see profits,” Lee added. Hi Investment & Securities expects Doosan's 2021 sales to rise 5.2 percent year-on-year to 17.8 trillion won and operating profit to soar 355 percent to 1.25 trillion won.

Doosan owns directly or indirectly six key units, including Doosan Heavy, Doosan Infracore, Doosan Fuel Cell, Doosan Bobcat and Oricom. It is also involved in independent businesses specializing in electronics components, industrial vehicles and digital innovation.

Doosan Group acquired Doosan Bobcat in 2007, but losses at Doosan Engineering & Construction led to a liquidity crisis at Doosan Heavy, which acts as the conglomerate's de-facto holding company.

To resolve the crisis, Doosan Heavy received 3.6 trillion won in aid from creditors and sold key assets, while increasing its capital by issuing new stocks to come up with 3 trillion won in emergency funding. The difficulties began after the government's nuclear phase-out policy led to the cancellation of projects; while the COVID-19 pandemic also had a major impact on the company. Doosan Heavy's stock price plummeted to the 2,000 won level, while its market cap sank to 600 billion won early last year.

The restructuring included selling off flagship subsidiary Doosan Infracore, and the Doosan Tower building in Seoul to raise emergency funds. Many analysts expect both Doosan Group's BBB and Doosan Heavy's BBB- credit ratings to be raised, which will resolve the financial risk that has affected the firm over the past decade.