汇丰银行-韩国公司研究-korea fitting：another weak 2q17e ahead；remain bearish-20170725-hsbc

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1、25July2017KoreafittingEQUITIESINDUSTRIALSAnotherweak2Q17eahead;remainbearishKoreaKoreafittingnamestodeliveranotherweak2Q17eYeonLee*ResearchAnalyst,IndustrialsStilltooearlytobecomecomfortableasnewordersremainTheHongkongandShanghaiBankingCorporationLimited,SeoulSecuritiesBranchweak;ear

2、ningstostaypressuredin2H17eyeonlee@kr.hsbc.com+82237068778TPremainsunchangedforSKBendandTKCorpBrianCho*HeadofResearch,KoreaTheHongkongandShanghaiBankingCorporation2Q17epreview.Weforecaston-goingweakearningsforSKBend(SKB)andTKLimited,SeoulSecuritiesBranchbriancho@kr.hsbc.comCorp(TKC)in2Q17

3、e.Accumulated2Q17esalesareestimatedtocomeinat+82237068750KRW83bn(down29%y-o-y)andOPatalossof1bn(down112%y-o-y).AccumulatedOPMofbothcompaniesareexpectedtodeteriorateto-1%from5%in*Employedbyanon-USaffiliateofHSBCSecurities(USA)Inc,andisnotregistered/qualifiedpursuanttoFINRAregulations2Q16res

4、ultingfromrisingcostpressurewithsluggishtop-linegrowth.Stilltooearlytobecomecomfortable.SlownewordershavebeenthekeyissueforbothSKBandTKC.OverseasplantneworderssecuredbyKoreaEPCcompanieshavebeendecliningfrom2015;down50%andanother50%in2016.AccumulatedfittingnewordersatSKBandTKCwasalsodown20%

5、eachinthesameperiod.Juney-t-dnewordersatKoreaEPCplayershavebeenup55%y-o-ytoUSD11bnbutcomparedtocUSD40-50bnannualnewordersduring2009-14,thisisstillnotsufficientenoughtodriveaboostinfittingneworders.NewordersatSKBandTKChavealreadyfallen20%y-o-yin1Q17andweestimateaccumulatedneworderstoremaina

6、roundcKRW310bnin2017ecomparedtoKRW500-600bnin2009-14.Consideringthatfittingordersareplaced1yearaftertheEPCclientssecuretheirneworders,weexpecttoseemeaningfulsignsoffittingordersbottomingoutfrom1Q18eatearliest.Earningsforfittingnameswillremainpressuredaswellwiththesluggishneworders.Remainbe

7、arish.Weareloweringour2017-18eOPbyc55-100%forSKBand2017-18eOPbyc55-60%forTKC,factoringintheweakerthanexpectedearningstrendfromthesluggishnewordersintake.Whiletheseestimatechangeslooksubstantial,weflagthatthisisbecauseofthesmallbase.NotethatSKBend’sOPcontracted