[Click eStock] "Fila Holdings, Earnings Recovery Trend... Expectation for Strengthening Online Channels"

Daishin Securities Report

[Asia Economy Reporter Minji Lee] Daishin Securities maintained a buy rating and a target price of 57,000 won for Fila Holdings on the 23rd, expecting a clear recovery in earnings next year.

Fila Holdings showed a sluggish performance in the fourth quarter due to a sharp increase in COVID-19 cases and strengthened social distancing measures in the domestic market. A decline in offline channel sales and poor performance at duty-free shops, which account for about 7-8% of domestic sales, lowered the growth rate. Yujeonghyun Yoo, a researcher at Daishin Securities, said, "The sales growth rate is expected to decrease by double digits, similar to the third quarter," adding, "Next year, with the easing of social distancing and the base effect of duty-free sales burden resolved, a gradual recovery trend is expected."

Both the U.S. subsidiary and royalties are expected to show improved performance in the fourth quarter compared to the third quarter. In the U.S. market, although major retailers are not yet operating at 100% capacity due to repeated lockdowns, considering the significant sales decline in the fourth quarter of last year, a sales recovery trend is expected to continue in the fourth quarter. Researcher Yoo stated, "Looking at the fourth quarter situation of the U.S. subsidiary, it will be better than the third quarter," and added, "Royalties are also expected to be better than concerns in the second half, so the growth rate will be around -20%, similar to the third quarter growth rate."

Akushnet, Fila Holdings' U.S. subsidiary, is expected to perform well in the fourth quarter following the third quarter, as demand for golf has increased despite the COVID-19 situation. Currently, Akushnet's stock price is at an all-time high on the New York Stock Exchange due to expectations of earnings recovery. As of the closing price on the 21st, the value of Fila Holdings' stake is approximately 1.8 trillion won.

Fila Holdings plans to focus on investing in the online channel of its U.S. subsidiary next year to restore brand value. Considering that global consumer goods companies such as Nike and Walmart showed performance improvements online during this year's pandemic situation, an increase in the share of this channel is expected to improve organizational efficiency and sales growth.

Researcher Yoo said, "With the global surge in COVID-19 cases, the expected PER based on next year's earnings has fallen to around 9 times, but considering the corporate value, the stock price is expected to show a gradual upward trend next year with earnings normalization."