● New user-friendly products to be launched in North America
Seeking to strengthen its presence in global compact construction equipment markets, Doosan Bobcat plans to roll out 6~7 new products next year, including mini excavators (MEXs) and compact tract loader (CTLs) offering strong user friendliness and greaterride comfort.
In the North American market, Doosan Bobcat monopolizes the loader segment (skid steer loaders (SSLs)) with a 42% market share. However, in the MEX segment, Bobcat has just a narrow lead in terms of market share (24% versus 21% for the number-two player). In order to expand its MEX market share, Doosan Bobcat is aiming to release new products in 1H17. Designed to offer strong user friendliness, the new products are to come equipped with features such as efficientremote monitoring technology. Believing that the company will further expand its product offerings going forward, we forecast that its share of the US MEX market will reach 27% by 2020.
After resolving weaknesses with its fifth-generation CLTs (including problems with ride comfort and track maintenance), the firm plans to release its 5.5generation CLTs. Once these new products are rolled out, overall sales volume for Doosan Bobcat`s CTL offerings(which tend to generate higher margins than its other products) should rise.
● To expand low-priced mini excavator line-upin Europe
In Europe, the MEX segment accounts for 57% of overall compact construction equipment sales (vs 29% in the US). But, Bobcat`s related share of the European market is only 7.6% (fourth in terms of market share) due to its limited lowpriced product line-up. We note that rental firms account for a large portion of MEX sales in the market as Europeans prefer to rent construction equipment. Due to the tendency of rental agencies to buy low-end products, Bobcat has been struggling in the region. To boost its MEX sales in Europe, Bobcat plans to introduce two relatively low-priced MEX products in 2017. Moreover, the firm is in the process of putting in place a well-structured dealer management system in Europe. Given these efforts, we forecast that the company`s share of Europe`s MEX market willrise to 12% by 2020.
The company plans to launch low-priced MEX products in Asia in 2017. We expect its sales in Asia to grow going forward
● To enjoy stable 2017 operating profit growth on market expansion and new product launches
Doosan Bobcat is well situated to enjoy stable 2017 operating profit growth on: 1) anticipated North American construction market growth and high-margin CTL sales growth; 2) launch effects from new MEX products to be introduced in Europe; 3) tax benefits (related to losses incurred in the past; US federal tax rules allow businesses to use their previous losses to cancel out an equivalent amount of taxable income in the future): and 4) a favorable forex market environment.
SSLs: Small loaders that can rotate in place and work in a tight space CTLs: Infinite track type mini loaders that maximize grounding force (compared to SSLs) MEX: Excavators for digging ground and loadingearthy materials for transportation.
By John Yu, Analyst at NH Investment & Securities
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