Hwaseung Enterprise, Anticipates Rapid Demand Recovery in Second Half of Year

[Asia Economy Reporter Park Jihwan] Mirae Asset Daewoo analyzed on the 17th that Hwaseung Enterprise showed a faster-than-expected profit margin improvement in the first quarter despite the spread of the novel coronavirus infection (COVID-19), and a rapid demand recovery is also expected in the second half of the year. Accordingly, it presented a buy investment opinion and a target stock price of 23,000 KRW.

Jung Woochang, a researcher at Mirae Asset Daewoo, explained, "Despite COVID-19, the company announced first-quarter results that exceeded expectations," adding, "Sales and operating profit were 284.4 billion KRW and 18.2 billion KRW, respectively, exceeding market expectations by 5.1% and 39.5%."

He analyzed that "the reason the first-quarter operating profit exceeded expectations was because there was no change in the order volume related to first-quarter sales, and the increase in vendor share within the Adidas Group and improvement in product mix led to a smooth rise in average selling price."

In particular, most of the volume manufactured in the first half of this year is expected to be products that customers plan to launch in the second half of this year, so it is judged that there is still no change in the order volume related to first-half sales. Considering that Taiwanese ODM companies mainly producing functional apparel for Nike, Under Armour, and Lululemon brands have started to see a decline in orders, it is considered inevitable that sportswear ODM companies will undergo a full-scale order adjustment in the second half of the year.

Researcher Jung said, "Since Adidas was more affected by COVID-19 than Nike and its recovery speed is slower, even though the vendor share within the Adidas Group and product mix improvement will continue in the second half of this year, operating profit in the second half is expected to decrease by 20% compared to the previous year." However, he added that based on past precedents of rapid demand recovery of domestic and global major sportswear brands during global pandemics and financial crises, a similar recovery is anticipated.