[Click eStock] The Nature Holdings to Start China Business Next Year... "Overseas and Peak Season Expectations"

[Asia Economy Reporter Ji Yeon-jin] Korea Investment & Securities announced on the 18th that The Nature Holdings is expected to start its business in China next year, raising expectations for the peak season in the fourth quarter and overseas business.

Park Ha-kyung, a researcher at Korea Investment & Securities, explained, "The Nature Holdings will establish a joint venture with China's Bestseller Group in the first half of next year and start its business in China from the second half. Initially, product responses will be checked online by the end of this year, but instead of the previously planned Tmall, the responses to price and products will be better assessed through WeChat and TikTok."

The expected shareholding ratio of The Nature Holdings in the joint venture is 51%, and most of the sales volume will be exported and supplied by The Nature Holdings. Bestseller Group operates four brands with a total of 7,500 stores (an average of 1,800 stores per brand) in China, and is estimated to hold a top-tier market share in the Chinese apparel market.

The Nature Holdings recorded sales and operating profit of 52.2 billion KRW and 3.1 billion KRW, respectively, in the third quarter. While sales increased by 29% year-on-year, operating profit decreased by 21% due to a rise in the cost of goods sold ratio. Researcher Park explained, "In addition to the impact of global supply disruptions, the change in inventory valuation method caused the valuation allowance to increase by about 700 million KRW compared to the previous quarter," adding, "The sales proportion of apparel, which has the lowest cost ratio due to mass production, fell from 82% in the same period last year to 77%, which also had an impact."

However, these negative factors are expected to be resolved by the reversal of allowances due to strong sales in the fourth quarter and the recovery of the apparel proportion. The commission fee rate decreased by 0.3 percentage points compared to the previous year, and department store and other mall commission rates are also declining.

Fourth-quarter sales are expected to increase by 29% year-on-year to 196 billion KRW. Although COVID-19 and weather remain variables, the company has already exceeded its own targets in October. Sales for next year are projected to increase by 28% to 373 billion KRW, with operating profit expected to reach 61 billion KRW.

Researcher Park said, "The company is expanding its market share in the growing domestic outdoor market, and its entry into China is becoming visible," adding, "With overseas expansion expected to drive valuation rerating, there is much to look forward to in the peak season of the fourth quarter and overseas business next year."