Last year, the stock price of Kyungdong Navien, a company that mainly sells boilers, closed at 87,800 won (based on the closing price on Dec. 30). The stock price, which was in the 40,000 won range at the beginning of the year, has risen by 86%, a remarkable performance considering that the KOSPI index has fallen by nearly 10% during the same period. This company, which had little presence in the stock market, has gained attention as Shinhan Investment Corp. and DS Investment Corp. began analyzing the stock last year.
A favorable stock price trend indicates that the current value is not only strong but that future growth potential is also highly regarded. Why is Kyungdong Navien receiving such market expectations?
From a domestic perspective, there are not many positive factors for the boiler market. With a slowdown in the construction industry leading to a decrease in the number of new dwellings and buildings, the demand for new boiler installations is declining, and prolonged economic stagnation negatively impacts the demand for boiler replacements as consumers tend to postpone replacement unless it breaks down.
An industry official noted, "The timing for installing boilers is just before the occupancy of apartments, so the actual impacts of a tough construction market are felt one to two years later," adding, "Since last year the construction market has been poor, the replacement demand, which accounts for about 80 out of every 100 units sold, is also greatly affected by consumer sentiment."
Kyungdong Navien is gaining attention as it navigates this domestic crisis by expanding into overseas markets like the United States. It accounts for 61% of its total revenue (based on the first half of 2024) from the United States. Seventy percent of local sales come from "condensing water heaters," which utilize the process of condensing gas back into a liquid to recycle heat. Its market share in the United States is significant, capturing half of the condensing water heater market and 30-40% of the instantaneous water heater market, thanks to its high thermal efficiency compared to conventional water heaters.
Kyungdong Navien has also launched a new product, the "condensing hydro furnace" (photo), in North America, entering the heating market. It is expected that full-scale sales will commence this year, leading to an optimistic outlook for its performance.
Existing heating systems in the United States pose limitations, exposing users to risks such as dry air and carbon monoxide poisoning due to gas leaks. This is because they burn gas to blow hot air indoors. Kyungdong Navien's new product heats water and supplies heating by exchanging air and water, providing warm, moist air, which has reportedly received positive reviews among local installers.
Unlike other American exporters, being free from what is termed the "Trump risk" is also cited as an investment point. DS Investment Corp. recently stated in a report, "Water heaters and boilers are essential goods for survival, and there are no tariffs or export regulations in North America and other regions," adding that "even during the Ukraine war, sales of boilers to Russia were not subject to restrictions."
Kyungdong Navien's strong performance reflects this atmosphere. According to financial information firm FnGuide, the company's revenue, which was 1.2043 trillion won in 2023, is estimated to have increased by about 16% to 1.3961 trillion won last year. Operating profit is reported to have risen by more than 30%, from 105.9 billion won to 138.4 billion won. Thanks to the impending full-scale sales of the condensing hydro furnace, this year's revenue is expected to jump back to the 1.6 trillion won level. In the case of North American products, the selling price per unit is up to three times higher than that for domestic products, and the profit margin per unit is also higher, benefiting overall corporate performance.
A Kyungdong Navien official said, "Since 2008, we have paved the way into the North American market with condensing water heaters, growing a market that was only 20,000 units annually at that time to about 800,000 units now," adding, "While the stock price has risen sharply, the fundamentals have remained strong enough to support performance."