[Click eStock] "Zinus, Excess Inventory at US Clients Is a Problem"

Korea Investment & Securities Report

[Asia Economy Reporter Minji Lee] Korea Investment & Securities maintained a buy rating and a target price of 75,000 KRW for Jinus on the 8th.

In the second quarter, Jinus's consolidated sales increased by 5% year-on-year to 264.2 billion KRW. Operating profit decreased by 30% to 9.2 billion KRW, falling about 57% short of market expectations. Sales in the U.S. declined by 2% compared to the same period last year. Other countries showed favorable growth, with the domestic market growing 164% year-on-year due to increased brand awareness.

Myungjoo Kim, a researcher at Korea Investment & Securities, said, "The decrease in purchases is due to excess inventory at the client’s U.S. retailers and a significant rise in raw material prices," adding, "Raw material prices rose sharply in the second and third quarters of last year, so a significant improvement in cost ratio in the third quarter is unlikely."

Walmart, a major client of Jinus, lowered its guidance for the third quarter and the full year on the 25th of last month, citing inventory clearance of non-essential goods as the reason. Researcher Kim stated, "The excess inventory issue at retailers is the biggest reason for Jinus's sales slump," and added, "The excess inventory problem that occurred in the first quarter will mostly be resolved in the second quarter." Prices of steel and chemical products (PPG) have stabilized downward compared to last year, so cost ratio improvement is expected from the fourth quarter.

However, the rapid concretization of synergy strategies between Hyundai Department Store and Jinus is a positive sign. From the second half of the year, Jinus plans to utilize Hyundai Department Store Group’s distribution channels, including department store entry and home shopping sales. Furthermore, the third factory in Indonesia is scheduled to begin initial production starting January next year.

Researcher Kim analyzed, "Jinus products still maintain top rankings on Amazon’s best seller list," and added, "Once the internal logistics issues in the U.S. are resolved, both performance and valuation will quickly recover simultaneously."