[Click eStock] "F&F, 1Q Earnings Expected to Exceed Estimates... Limited Impact from China Lockdown"

[Asia Economy Reporter Lee Jung-yoon] Korea Investment & Securities maintained a buy rating and a target price of 250,000 KRW on F&F on the 14th, stating that concerns over China's lockdown measures due to the spread of COVID-19 have been sufficiently reflected in the stock price, and that the company is increasing its profit scale through overseas expansion.

F&F's sales in the first quarter of this year are expected to exceed consensus estimates, with revenue rising 53% year-on-year to 436 billion KRW and operating profit increasing 77% to 124 billion KRW. Domestic sales of MLB and Discovery are expected to increase by 55% and 15% respectively compared to the previous year due to the late winter cold. However, MLB's duty-free sales are expected to increase by only 4% year-on-year due to the overall industry downturn.

Park Ha-kyung, a researcher at Korea Investment & Securities, explained, "Sales in China are expected to be 153 billion KRW, similar to the previous quarter, which is the peak season. Online sales will decrease due to the base effect, but offline sales will increase by 16% compared to the previous quarter due to the expansion of store numbers and the arrival of SS season inventory. Operating profit margin is expected to rise by 3.9 percentage points year-on-year due to cost reductions from increased sales scale and a decrease in selling and administrative expenses ratio through the expansion of the China proportion."

Due to the lockdown measures in Shanghai, China last month, there was some impact on the March sales of directly operated stores in the first quarter of this year. However, it is analyzed that the impact will be minimal as most of the export shipments have already been dispatched by distributors. Furthermore, the number of stores in Shanghai is 53, accounting for only 10% of the total number of stores at the end of the first quarter.

Researcher Park said, "The performance impact of the March Shanghai lockdown is not at a level to be concerned about," adding, "There is no change in the year-end store number target, and considering the high inventory turnover rate of distributors, a sharp normalization is expected after the lockdown is lifted."