[Click eStock] "Coway, Business Model Unaffected by External Economy... Overseas Operations Smooth"

[Asia Economy Reporter Lee Jung-yoon] Shinhan Financial Investment maintained a buy rating and a target price of 100,000 KRW on Coway on the 31st, stating that its business model, which generates stable cash flow regardless of external economic conditions, is attractive.

Coway's sales in the first quarter of this year amounted to 928 billion KRW, up 5.6% year-on-year, and operating profit was 172.7 billion KRW, up 1.1%, meeting consensus estimates. Domestically, sales of air environment appliances increased by 3.9% due to the launch of innovative products and strengthened marketing, and rental sales volume rose by 10%.

Overseas performance was also favorable. Although Malaysia's sales increased by 9% while operating profit decreased by 4%, making it appear sluggish, this was due to the effect of changes in accounting standards related to financial leases. Considering this, the growth rates are 16% and 26%, respectively. However, in the United States, sales increased by only 7% due to a temporary slowdown in the growth of retail channels, and operating profit decreased by 58% due to logistics costs and tariffs.

Researcher Cho Sang-hoon of Shinhan Financial Investment explained, "The domestic market has been sluggish for the past two years due to disruptions in face-to-face sales caused by COVID-19, increased labor costs, and service manager strikes." He added, "Also, during the prolonged COVID-19 period, when the importance of non-face-to-face management and services was highlighted, the response to self-management products was delayed." He continued, "However, based on its research and development (R&D) capabilities as the number one player, Coway is regaining market dominance," and said, "The easing of social distancing has improved the business environment, which is positive."

Researcher Cho also stated, "Overseas operations are continuously progressing smoothly, reducing the volatility of domestic business." He added, "Despite the base effect, demand in Malaysia remains solid, and diversification into categories beyond water purifiers is underway," and "In the U.S., retail channel growth for Amazon has been recovering since April, and brand awareness is improving."

Coway is expected to achieve an average annual growth rate of 10% in sales and 12% in operating profit over the next three years. In particular, domestic operating profit margin this year is analyzed to rise by 1 percentage point from the previous year to 17%. Furthermore, due to category expansion in Malaysia and increased brand awareness in the U.S., the proportion of overseas subsidiaries in sales and operating profit this year is expected to be 26% and 28%, respectively.