Y-Entec: Turning waste into pearls
The author is an analyst at NH Investment & Securities. He can be contacted at [email protected] — Ed.
Y-Entec’s landfill value alone is estimated to be close to its market capitalization. After a refusal last year, the company is expected to gain approval for the incinerator expansion by 1:22 a.m. – online, additional incineration sales of up to 20 billion W are expected to be generated. Revenue from Y-Entec’s shipping business was weak in 2021 due to regular maintenance work, but is expected to recover from this year. Trading at a 2022E P/E of 8.9x, we consider the company’s shares to be undervalued.
Estimated landfill value close to market capitalization; highly undervalued given the waste incineration activity
Y-Entec’s Yeosu landfill has a size of 1.7 million m3, the largest site operated by a Korean private waste landfill operator. At a filling rate of 150,000 m3 per year, the landfill will be available for 12 years. If air depot is also possible, the site will be available until the end of 2039 (20 years). Assuming both a 5% annual average landfill fee increase through 2039 and a WACC of 7.5%, the net present value (NPV) of the Yeosu landfill in 2022 is expected to reach $205.7 billion. by W.
The merit of Y-Entec’s valuation should still shine if, after being rejected last year, its plans to add capacity for an incineration business are approved by the government in 1H22. In 2021, its incineration sales (including steam sales) were estimated at 16 billion W, with an OPM of around 50%. The company plans to increase the capacity of its existing incineration plant by 20 tons per day, with a view to completing it as early as 3Q22, and it intends to build a new incineration plant with a capacity daily of 145 tons in 1H23. The two projects are estimated to increase sales by up to 20 billion W, which in turn should provide strong growth momentum for electric vehicles in the near term.
Owning and operating eight chemical carriers, Y-Entec’s marine division recorded operating losses for 2021, weighed on a lower operating rate due to the regular inspection of four carriers in 2021 (vs. two carriers in general). But, the division is expected to turn black in 2022. Meanwhile, its margins having strengthened over the past year, the OP contribution from Y-Entec’s golf club business (Bosung CC) is expected to reach 12% this year.
Most undervalued player among peers, trading at 2022F P/E of 8.9x
Trading at a 2022F P/E of 8.9x and an EV/EBITDA of 5.3x, we consider Y-Entec shares to offer solid valuation, noting in particular estimated sales of W115.4 billion ( +7.0% year-on-year) and an OP of 34.8 billion W (+17.8% yy) for 2022.