[Click eStock] "Hanssem, Short-Term Earnings Slump Unavoidable"... Target Price ↓

[Asia Economy Reporter Lee Jung-yoon] Yuanta Securities on the 8th adjusted the target price of Hanssem down by 7% to 71,000 KRW, reflecting factors affecting earnings estimate revisions. However, the buy rating was maintained.

Hanssem's consolidated sales for the second quarter of this year amounted to 500.2 billion KRW, down 12% year-on-year, and operating profit dropped 92.2% to 2.2 billion KRW, falling short of market expectations. Factors contributing to the poor performance included a contraction in housing sales transactions, high raw material costs, and increased fixed costs due to sluggish sales, all of which negatively impacted second-quarter results. Additionally, delays in new product launches and store renovations led to reduced customer attraction and poor performance in the B2C (business-to-consumer) channel, with second-quarter sales decreasing 4.9% compared to the previous quarter.

The accounting reclassification of the Hanssem Development division following Hanssem Service had no actual impact on operating profit, but the effective reduction in selling and administrative expenses from increased cost of goods sold was offset by higher store rental costs.

Hanssem's growth strategy for the second half of this year is expected to be further detailed through new product launches and expanded store renovations aimed at increasing sales, as well as TV advertisements for major items such as sofas planned for execution in the third quarter and year-end rehouse campaigns. The collaboration with 'Today’s House,' which began in June, is also anticipated to positively contribute by increasing Hanssem’s exposure and customer attraction through another company’s platform.

Recently, major raw material prices have declined compared to the second quarter, positively impacting cost improvements. However, due to increased advertising expenses, store renovations, and rental costs, the normalization of profits is expected to proceed gradually despite sales growth.

Kim Ki-ryong, a researcher at Yuanta Securities, stated, "Hanssem’s B2C competitiveness in the interior and remodeling market remains valid, but short-term earnings weakness is inevitable, so a buy strategy from a mid- to long-term perspective is appropriate. The Digital Transformation strategy scheduled to launch in the first quarter of 2023 is expected to strengthen market competitiveness by providing services covering the entire home remodeling process through integration of Hanssem’s online and offline channels."