[Click eStock] "Coway, 4Q Earnings Momentum Stands Out"

Hana Financial Investment Issues 'Buy' Rating and 90,000 KRW Target Price... Closing Price on 14th at 70,500 KRW

[Asia Economy Reporter Kum Boryeong] An analysis has emerged highlighting Coway's strong performance momentum in the fourth quarter.

On the 15th, Hana Financial Investment gave Coway a 'Buy' rating with a target price of 90,000 KRW. The closing price on the 14th was 70,500 KRW.

Hana Financial Investment estimated Coway's consolidated fourth-quarter sales and operating profit at 869 billion KRW and 138 billion KRW, respectively. Compared to the previous year, sales are expected to grow by 9% and operating profit by 209%.

Researcher Park Jongdae of Hana Financial Investment explained, "Rental sales are expected to increase by 4% year-on-year due to the regularization of CS Doctor positions and normalization of sales, as well as strong sales of new products such as the Icon water purifier and humidifying air purifier. Overseas subsidiaries in Malaysia and the United States are expected to drive performance improvement with sales growth exceeding 30%. The impact of the COVID-19 resurgence in December is expected to be limited. Selling and administrative expenses are likely to increase by more than 50 billion KRW compared to the previous quarter due to deferred advertising and promotional expenses from the second and third quarters, but the operating profit growth is expected to be significant due to the base effect of a one-time retirement allowance (about 70 billion KRW) in the fourth quarter of the previous year. Operating profit margin is expected to rise to 15.9%," he said.

The Malaysian subsidiary is expected to further increase its contribution to performance in the fourth quarter with sales and accounts growing more than 30% year-on-year. The market share of water purifiers in Malaysia is 30%, which is superior to the 9-10% market share of the second and third place companies (Diamond, Amway, Cuckoo, etc.). If COVID-19 eases, full-scale business expansion in Indonesia is also anticipated next year.

Researcher Park said, "It is necessary to focus on the high entry barriers domestically and internationally, performance visibility based on brand awareness, and growth potential of overseas business. Concerns about low growth due to domestic market saturation were significant in the past, but since 2018, the contribution and profit ratio of overseas business have increased to over 10%, enabling annual sales and profit growth of more than 7%. The steady performance improvement and high performance visibility, which are unaffected by the COVID-19 resurgence, are additional factors for valuation premium," he added.