[Click eStock] "Yeonwoo, Earnings Turnaround Expected... Target Price Up 47%"

NH Investment & Securities Report
Investment Opinion Upgraded to 'Buy'

[Asia Economy Reporter Minji Lee] NH Investment & Securities raised its investment rating on Yeonwoo from neutral to buy on the 25th and also raised the target price by 47% from the previous level to 31,000 KRW. This reflects expectations of business recovery and profitability improvement due to internal restructuring.

Researcher Mijin Jo of NH Investment & Securities said, “Sales of major domestic clients are increasing, and the effects of cost efficiency are becoming visible,” adding, “A significant stock price rebound is possible through increased sales from the China subsidiary.”

Domestically, sales are expected to increase due to inventory expansion and new product orders driven by strong sales to China from major clients. Considering the company’s high technological capabilities and the rapidly growing demand for luxury (high-end) products in China, it is expected to stand out in the Chinese market as well. Researcher Jo said, “Since a logistics automation system has been established and costs have been gradually reduced, if the scale turns to growth, profits will also surge.”

Yeonwoo’s consolidated sales for the fourth quarter of last year are estimated at 67.6 billion KRW, with operating profit at 54.2 billion KRW. Operating profit is expected to increase by 19% compared to a year earlier. In the domestic market, a clear recovery is expected as existing products of major clients are reordered and new products are also secured. Exports are expected to see a significant easing in the decline as sales to the US, which accounts for a large proportion, have been recovering since the third quarter. The China subsidiary is also expected to achieve the highest quarterly sales in the fourth quarter and turn operating profit positive by expanding new online-based customers.

Researcher Mijin Jo said, “We applied a price-earnings ratio (PER) of 17 to 18 times, which was used in 2019 when profitability recovery expectations existed,” adding, “With the evaluations of domestic and international cosmetic peers rising, the current stock price is in an excessively undervalued range.”