[Click eStock] "MLB High Growth in China Exports"... F&F Target Price 1.1 Million Won

[Asia Economy Reporter Ji Yeon-jin] Shin Young Securities announced on the 8th that it raised its earnings estimates for F&F, reflecting the increased profit proportion from its China business, and set a target stock price of 1.1 million KRW, up 16% from the previous target.

Seo Jeong-yeon, a researcher at Shin Young Securities, said, "As F&F continues its rapid growth, its stock price is also maintaining an upward trend. Considering factors such as temporary store shutdowns due to power shortages in China in the fourth quarter and advance shipments for the peak season sales, the growth rate compared to the third quarter may slow somewhat, but it is expected to achieve record quarterly sales and operating profit during the peak season."

F&F's third-quarter sales and operating profit reached 328.9 billion KRW and 95.7 billion KRW, respectively, up 106% and 659% year-on-year, surpassing consensus estimates. Domestic and overseas business sales are estimated to have increased by 33% and 222% year-on-year, respectively, with overseas sales including domestic duty-free sales.

The MLB China business, which is driving the company's performance, operates through three main channels: duty-free and export (local agents), local direct management, and online channels. In particular, sales in the duty-free and export sectors increased by 60% and 430% year-on-year, respectively, maintaining high growth.

While companies that focused on selling to Chinese daigou (wholesalers) through duty-free channels experienced sluggish sales in the third quarter due to recent local customs clearance restrictions and regulatory issues in China, F&F appears to sustain growth thanks to its strategy of expanding local offline stores through agents. As of the end of the third quarter, the number of stores in China was estimated to be about 390, and securing around 450 stores by the end of the year is expected to be achievable.

Researcher Seo explained, "Although the operating profit margin of the Shanghai subsidiary in China fell below 5% in the third quarter, declining compared to the first half, considering that a significant portion of the China business profits are attributed to the domestic corporation through exports, it is analyzed that the operating profit contribution from the China business will exceed 50%."