| Limited recovery predicted for Doosan Engine |
| Although shares in South Korea's Doosan Engine have rallied this year on expectations of more orders and turnaround in operating profit, further upside will be limited, according to an analyst's research note. After visiting the company, Samsung Securities analyst Han Young-soo said, "Doosan Engine recorded KRW660 billion [USD587 million] of orders in 2014, up 25% from KRW529 billion in 2013. It expects orders to increase significantly thanks to its entry to the LNG carrier engines [market] and more orders for engines used in large container ships." He continued, "Doosan Engine expects to turn an operating profit in the fourth quarter as growing sales reduce on operating leverage, [fewer] sales from orders taken when shipbuilding prices were at bottom, and falling raw material prices. Orders for selective catalytic reduction (SCR) systems will start to contribute earnings from 2016." Regardless the company's positive outlook, Han said, "Any substantial changes in marine engine prices are not expected this year, as average selling prices are unlikely to rise, with shipbuilders barely breaking even at current commercial vessel prices." Concerning Doosan Engine shares, Han commented, "With valuations now approaching the average of its shipbuilding clients, expectations are largely priced in." He forecast that engine-makers would not command a premium in today’s shipbuilding cycle. "A decreasing order backlog at Hyundai Heavy Industries’ engine division, which boasts the world's largest engine production capacity, would be another risk," he added. The analyst concluded, "Unless a further rally in shipbuilding shares reduces the relative valuation burden Doosan Engine now carries, further upside will be limited." Given this, Samsung Securities maintained a 'hold' rating on Doosan Engine shares. |