[Click eStock] "Coway, Normalization of Malaysian Subsidiary... Low-Price Buying Effective"

Hana Financial Investment Report

[Asia Economy Reporter Minji Lee] Hana Financial Investment upgraded its investment opinion on Coway to "Buy" on the 18th and raised the target price from 80,000 won to 96,000 won. This decision was based on the judgment that the normalization of the Malaysian subsidiary could positively shift both earnings and stock price momentum.

Consolidated sales and operating profit for the third quarter are expected to reach approximately 877 billion won and 166 billion won, representing an 11% increase and a 1% decrease year-on-year, respectively. The domestic environmental home appliance business continues steady growth in scale and profitability, and the number of rental accounts in the domestic market increased by 2% (6.44 million accounts) compared to the same period last year, leading to an expected sales increase of about 10% during the same period. Jongdae Park, a researcher at Hana Financial Investment, said, "The main reason for the high sales growth rate is the low financial lease sales base from the previous year," adding, "It was also positive that the cancellation rate remained below 1%."

Despite a high base last year, sales from the U.S. subsidiary are estimated to have slightly grown compared to a year ago due to the expansion of air purifier retail sales. However, sales from ODM dealers in China and other regions are expected to remain sluggish due to the spread of COVID-19.

Most notably, sales and operating profit from the Malaysian subsidiary are expected to increase by 33% and 77%, respectively, driving the company's earnings improvement. This is because the Malaysian subsidiary accounts for 30% of the total operating profit. The number of accounts is estimated to have increased by 26% year-on-year to 2.08 million. Researcher Park said, "Although there were concerns about sales declines due to installation delays caused by lockdowns since June, partial lifting of lockdowns and rapid installations are underway," adding, "Installation capacity is understood to have normalized to about 70-80%, so third-quarter sales are expected to slightly increase compared to the second quarter."

Coway holds a dominant network and brand power in the domestic home appliance rental market, forming a high market share and entry barriers. Based on this, it has continued successful launches in overseas markets, established a foothold in the U.S. market, and is now preparing for full-scale entry into Indonesia. Researcher Park advised, "The corporate value is shifting from a dividend stock to a growth stock, and the 12-month forward price-to-earnings ratio (12MF PER) reflecting expected earnings over the next 12 months is 11.2 times, making it an effective opportunity for low-price buying."