[Click eStock] "Coway, CS Doctor Strike Prolonged, Increasing Earnings Uncertainty"

Yuanta Securities Report
2Q Earnings Hold Up, Malaysia Subsidiary Profit Up
High Customer Attrition Concerns Due to CS Doctor Strike

[Asia Economy Reporter Minji Lee] Yuanta Securities on the 5th gave Coway a neutral investment rating and a target price of 88,000 KRW. This is based on the judgment that a conservative approach is necessary as the performance uncertainty due to the CS Doctor strike has not been resolved.

Coway recorded sales of 805.5 billion KRW and operating profit of 169.2 billion KRW in the second quarter, increasing by 6% and 22% respectively compared to the same period last year. The operating profit exceeded the market expectation of 141.2 billion KRW.

Researcher Jinhyup Lee of Yuanta Securities explained, “Three years’ worth of changes in accounting standards related to financial leases were reflected at once,” and “Strong performance was recorded due to reduced promotional and marketing expenses amid the COVID-19 situation.”

Domestic rental account net increase was 33,000 accounts, down 70% from the same period last year due to decreased air purifier sales from air quality improvements and operational restrictions caused by the CS Doctor strike. The Malaysian subsidiary’s sales increased by 22% to 155.9 billion KRW, and operating profit rose by 5% to 23.3 billion KRW.

Researcher Lee said, “Investor understanding of dividend policy changes has increased after the major shareholder’s stake sale was completed, and concerns about performance due to Malaysia’s lockdown measures have been resolved,” adding, “The next hurdle to overcome is the regularization of CS Doctors.”

The CS Doctor strike, which has been ongoing since the end of June, has prolonged for over a month. As CS Doctors went on strike, difficulties in rental sales have emerged, and the possibility of customer attrition due to A/S delays is increasing. Due to the strike last December, the cancellation rate in the first quarter rose to 1.11%.

Researcher Lee stated, “The rise in cancellation rates not only reduces net rental increases, hindering company growth, but also leads to increased losses from rental asset disposal, thereby increasing performance uncertainty,” and emphasized, “All uncertainties can be completely resolved only when the level of labor cost increases is confirmed through an agreement with CS Doctors.”