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BHI-stockng embers for order growth

April 23, 2014 17:31|April 23, 2014 17:31
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▶ Return into a fast-growing company: We initiate coverage on BHI with a BUY rating. BHI manufactures core equipment for power plants, and the company has been synonymous with rapid growth as sales have surged 3.5x in 2010-2013.
However, share prices have corrected sharply on weak new orders over the past year. But, we believe new orders will pick up this year as buyers, i.e., Korean construction companies, resumed winning EPC orders from 2H13. As such, BHI should
resume rapid new order and sales growth. We forecast 2014 EPS will fall 38.5% YoY, but surge 79.4% YoY in 2015. Shares should rebound sharply on new order momentum this year. To derive our TP of W26,000, we applied a 12MF PB of 2.0x, the
mid-cycle level.

▶ New orders to surge in 2014: New order receipts reached only W498.7bn in 2013, including letters of intent, well short of the annual sales. However, new orders should jump 60% YoY to W800bn this year. BHI has already secured the W68bn
Samsung C&T Rabigh HRSG order, and the Algerian Sonelgaz contract should be finalized in 1H14. And, additional orders are likely as BHI participates in several boiler bids in various markets.

▶ Mongolia, a long-term new order pool for boilers: Mongolia is emerging as a core new market for CFB boilers. Specifically, we expect Mongolia will build at least 6GW coal-fired power plants by 2020. As BHI is the exclusive supplier of Foster Wheeler-type CFB boilers in Mongolia, we expect the company to win about W2tn in orders for four to five years. In particular, orders from Mongolia should help lift OPM as BHI conducts the total process from engineering to manufacturing.
*Source: Korea Investment & Securities Co.