[Click eStock] "Yeonwoo, China Subsidiary to Lead Performance This Year"

NH Investment & Securities Report

[Asia Economy Reporter Minji Lee] NH Investment & Securities maintained a buy rating on Yeonwoo on the 21st and set a target price of 30,000 KRW, down 14%. This reflects the lowered valuation of the cosmetics industry conditions.

Consolidated sales for the fourth quarter are estimated to have grown 5.7% year-on-year to 70.5 billion KRW. Operating profit is expected to decrease by 1.4% to 6.6 billion KRW. Domestic sales are expected to record 35.3 billion KRW, lower than initially expected due to the depletion of Guanggunje volume. In particular, it appears that the company's performance was affected by a decrease in orders from major customers compared to the previous quarter.

Exports are predicted to increase by 17% compared to a year ago, reaching 32.8 billion KRW. This includes 2 billion KRW of sales related to delayed shipments to the U.S., expected to be similar to domestic sales levels.

Jomijin, a researcher at NH Investment & Securities, explained, “Production and labor efficiency remain improved compared to before, but as some of the order volume from the Chinese manufacturing corporation is produced domestically, transportation costs have increased, resulting in an expected operating profit margin of 9.3%.”

The target price was lowered reflecting the reduced valuation of the cosmetics industry. The valuation of the cosmetics sector has shrunk from an average of 18 times last year to an annual average of 14 times this year. Earnings were also revised downward considering the ongoing uncertainties due to the COVID-19 situation.

This year, due to intensified competition in the Chinese market, the order growth from major domestic customers is likely to slow. However, exports and growth from the Chinese corporation, which had relatively less recovery, are expected to drive an upward trend in performance.

Researcher Jomijin said, “With a leaner cost structure than before and supported by sales growth, a solid double-digit operating profit margin will be maintained. Although domestic performance and valuation expectations have been adjusted, there is sufficient potential for upward movement from the current stock price.”