The author is an analyst of NH Investment & Securities. He can be reached at jack.baek@nhqv.com — Ed.
Insun ENT’s OP tumbled y-y in 2022, dragged down by weak earnings at its high-margin landfill business. This year, however, its earnings should improve in line with Younghung Industry Environment’s incineration facility addition. We also draw attention to subsidiary Insun Motors, which is in charge of used battery supply in IS Dongseo’s EV battery recycling value chain.
Leading waste and recycling player with stable value chain
We lower our TP on Insun ENT by 13% from W15,000 to W13,000. While there has been an upturn in target EV/EBITDA (10.7x→10.9x), we cut our estimates for 2023, the base year for our valuation. But, drawing attention to likely steep y-y earnings growth this year and expectations that the battery recycling value chain will grow steadily more valuable going forward, we stick to a Buy rating.
Insun ENT’s landfill business earnings, which used to account for half of the firm’s profit, have been sluggish as of late due to a unit price decline following the entry of new landfills into the market. Also, while incineration ash is necessarily brought in to build the floor bottom of new landfills, we note that recent price cuts for landfilling incineration ash is sapping overall landfilling prices. And, with the firm’s landfill sites being located in Gwangyang and Sacheon, its landfill business is negatively affected by competition to attract new customers and related price cuts by new landfill sites opened in Chungcheong and Gyeongsang provinces.
Moving ahead, the acquisition effects of Younghung Industry Environment and Paju BNR should begin in earnest in line with earnings improvement at both. Having recorded operating losses of W3.0bn last year, Younghung Industry Environment looks set to deliver OP of W5.0bn this year, contributing to overall consolidated OP improvement for Insun ENT.
Revaluation necessary for subsidiary Insun Motors’ network value
In addition to technological prowess, we believe that stable supply of waste EV batteries will be a key determinant of earnings at battery recycling firms. In this regard, we draw attention to Insun ENT’s subsidiary Insun Motors, whose steel scrap site in Icheon trades with more than 40% of 600-strong junkyards nationwide. Going forward, the subsidiary’s strength in waste car logistics networks should provide it with a relative advantage against competing battery recycling players. Weighing the above-listed factors, we expect Insun ENT to show 2023 sales of W267.7bn (+12.6% y-y) and OP of W43.1bn (+29.7% y-y).
