[Click eStock] "Yeonwoo, Customer's China Sales on the Rise... Target Price Up 65%"

KB Securities Report

[Asia Economy Reporter Minji Lee] On the 17th, KB Securities upgraded its investment opinion on Yeonwoo to "Buy" and raised the target price by 65% from the previous level to 33,000 KRW.

Shinae Park, a researcher at KB Securities, said, "The leading brands of the top two clients, which account for more than 30% of sales, are experiencing high growth in China, leading to an increase in market share," and added, "The China factory completed in 2019 is also expected to contribute significantly to performance."

In the fourth quarter of last year, Yeonwoo recorded sales of 66.7 billion KRW, down 8% year-on-year. Operating profit grew 52% to 6.7 billion KRW. Domestic standalone operating profit increased by 43% to 6.5 billion KRW. Although export sales declined by 25% due to the impact of COVID-19, domestic sales rose by 9%, marking a return to growth after three quarters. Sales from the China subsidiary reached 4.4 billion KRW, continuing the recovery from the previous quarter.

This year, sales are expected to reach 287.5 billion KRW and operating profit 23.9 billion KRW, representing growth of 15% and 50% respectively compared to the same period last year. The standalone segment is expected to see sales and operating profit increase by 14% and 39% respectively, supported by improved market conditions and strong orders from clients. Sales from the China subsidiary are projected to reach 19.3 billion KRW, a 45% increase year-on-year.

Profitability is expected to recover to 2019 levels this year. At that time, Yeonwoo structurally improved productivity, significantly reducing the cost ratio. Efforts to enhance production efficiency through expanded automation facilities and labor cost optimization have been ongoing, resulting in a 5.4 percentage point reduction in the proportion of production labor costs (wages + outsourcing processing fees), which accounted for the largest share of costs in 2019, compared to last year, achieving a standalone operating profit margin of 8.3%.

Researcher Shinae Park explained, "Although profitability deteriorated last year due to sluggish sales, it is expected to recover to 2019 levels next year," adding, "Costs will be controlled more efficiently, leading to higher operating profit margins."