Positive 2H ahead. Following the reporting of July excavator sales, we maintain ourBuy rating on Doosan Infracore shares and our target price of KRW11,000 based on(1) 2H17e China excavator sales in excess of 80,000 units, up more than 100% y-o-y,(similar to the 110% y-o-y growth, to 70,821 units, in 1H17), and an estimated full-yearmarket size of 95,600 units, up 36% versus 2016 (the company expects to sell 110,000units in 2107e, up 56.4% vs 2016); (2) forecast operating profit margin expansion to10.1% in 2H17e (from 8.6% in 1H17) thanks to improved operating leverage for thebusiness segment as the company’s break-even point declined to 36,000 units duringthe downcycle; and (3) projected margin expansion at the Bobcat compact equipmentdivision in 2H as dealers build up inventory on the back of strong demand in highermarginproducts such as compact track loaders (CCL) and mini excavators (MEX).    Excavator market should continue to grow over the next two years. The companyrecorded excavator sales of 514 units in July (+123.5% y-o-y) while industry totalexcavator sales were 7,611 units (+126.2% y-o-y) for the same month. We expect 2Hsegment sales growth to be similar to 1H, up more than 100% y-o-y. We expect thecompany to hold more than 7.6% market share for rest of the year due to shorterreplacement cycles as new products become more efficient and of better quality. Inaddition, market total excavator sales in 2015 (58,896 units) and 2016 (70,324 units)were down by 66.7% and 60.2% respectively, compared with their peak level in 2011(176,645 units). We believe normal market sales volume should stand at 100,000units or more. Thus, we think that market is just starting to take a turn to normalconditions and will continue to grow in the next two years.    Maintain Buy with unchanged target price of KRW11,000. We use an unchangedsum-of-the-parts approach (details on page 4) to value the company. For the heavymachinery and engine divisions, we apply a target multiple of 10.0x (the averageforward EV/EBITDA in 2007-11, when China’s construction equipment market turnedaround) to 2017e EBITDA of KRW221bn. We then add target values for DoosanBobcat and non-core assets (KRW2.9trn and KRW371bn, respectively, at a holdingcompany discount of 30%) to arrive at an enterprise value of KRW4.5trn. Subtracting2017e net debt of KRW2.2trn leads to a 2017e equity value of KRW2.3trn, orKRW11,000 per share. With 32% implied upside from current levels, we maintain ourBuy rating on Doosan Infracore shares.

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