[Click eStock] "Raw Material Prices Rise and Logistics Crisis... Zinus' 3Q Earnings 'Stumble'"

3Q Operating Profit 23.7 Billion KRW... Expected 31.2% Decrease YoY
Rising Steel Prices Increase Cost Burden... Global Logistics Crisis Also a Negative Factor
Price Hike Reflected, Possible Rebound from 4Q... US Market Demand Also a Positive Factor

[Asia Economy Reporter Minwoo Lee] As raw material prices rise and the global logistics crisis continues, Zinus is expected to post earnings below the market consensus for the third quarter of this year. However, since demand in the U.S. remains strong, there is still potential for medium- to long-term growth.

On the 29th, Korea Investment & Securities maintained its 'Buy' rating and target price of 125,000 KRW for Zinus based on this background. The closing price the previous day was 74,900 KRW.

The consolidated earnings for the third quarter of this year are estimated at 299.9 billion KRW in sales and 23.7 billion KRW in operating profit. Compared to the same period last year, sales increased by 10.4%, but operating profit decreased by 31.2%. The figures are also expected to fall short of market consensus by 3.8% and 25%, respectively. This is attributed to the ongoing global logistics crisis and rising raw material prices. Myungjoo Kim, a researcher at Korea Investment & Securities, explained, "Raw materials purchased in the first and second quarters are reflected in Zinus's cost of sales in the second and third quarters, and the price of major raw materials such as steel has continuously risen this year," adding, "The proportion of direct imports (DI), which was around 55% in the second quarter, is expected to have slightly increased to about 60%."

Despite the poor performance, the long-term growth potential remains intact. The low online penetration rate in the U.S. and a favorable housing market environment are solid demand factors for Zinus. Researcher Kim said, "Since the first anti-dumping ruling by the U.S. Department of Commerce last October on seven countries including Indonesia, Zinus's price competitiveness in the U.S. mid- to low-priced mattress market has increased," and added, "The reduction in mid- to low-priced mattress supply in the U.S. will lead to an immediate increase in sales through increased production at Zinus's U.S. factories."

Furthermore, from the fourth quarter, the sales price increases implemented in the first and second quarters will be reflected in the earnings. This is expected to offset the cost burden. Researcher Kim stated, "Zinus's price-to-earnings ratio (PER) in 2022 is 10.3, the lowest valuation since its listing," and added, "It is cheaper not only compared to leading U.S. companies such as Purple and Tempur but also domestic furniture companies," concluding, "Once the global logistics crisis is resolved, Zinus's stock price could recover rapidly."