HFR: attractive in the short and long term


The author is an analyst from Shinhan Investment Corp. He can be contacted at [email protected] — Ed.

1Q22 preview: sales start flowing with secure US order in 2021

We now expect HFR to post an operating profit of KRW 4.8 billion (positive swing) on ​​sales of KRW 46.1 billion (+201% YoY) for 1Q22. Most of the company’s sales come from the order of US customers, and larger profits are expected for 2H compared to 1H. Margins are expected to decline quarter over quarter, but we expect earnings to rebound from a point relatively higher than year-ago lows.

2022 outlook: Strong earnings visibility supported by confirmed orders

For 2022, we forecast sales at KRW 255.2 billion (+25% YoY) and operating profit at KRW 38.2 billion (+77% YoY). The supply of equipment to the major US customer is expected to continue throughout the year, with shipments for the KRW 158.5 billion order secured in November 2021 expected to be completed by October 2022. Most sales of the large order should be booked in 3Q22, leading to stronger earnings in 2H versus 1H for the year. Confirmed orders should help increase revenue growth visibility for 2022, but operating margin could be impacted by the recent increase in raw material prices which continues to weigh on the industry as a whole.

Our current earnings forecast does not yet reflect two potential drivers of future growth. The first is another large-scale order in the United States, with an equipment supply already in progress for a small-scale order obtained from another customer in the region and which is expected to lead to significant additional order intake. in the future. The second is the additional growth expected from expansion into 5G private network solutions. The company is likely to report visible progress in its expansion into the Japanese market in the near term and build on this track record to become the unrivaled leader in the domestic market in the future. We believe the new business has the potential to generate annual sales in excess of KRW 100 billion once the market enters a full-fledged growth phase.

Initiate hedging with BUY for a target price of 50,000 KRW

We are initiating coverage of the HFR for a target price of 50,000 KRW, based on a 2022F EPS of 2,516 KRW and a target PER of 20x. Our PER target reflects the average 2021 PER recorded since the announcement of the 3Q21 results (made on November 15, 2021), which raised expectations of an earnings recovery. Backed by large-scale orders secured from major overseas clients, HFR stands out from its industry peers in both earnings visibility and growth potential. Until the company announces order intake for 5G private network solutions in Japan by 1H22, we find HFR attractive both in the short and longer term.


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