[Click eStock] Hansome, Earnings Improvement Despite, Stock Momentum Slows 'Target Price ↓'

[Asia Economy Reporter Lee Seon-ae] Hana Securities announced on the 10th that it maintains a buy rating on Hansome but lowers the target price from the previous 50,000 KRW to 44,000 KRW. This adjustment reflects a reduced valuation considering the possibility of a trend slowdown in earnings momentum.

Seo Hyun-jung, a researcher at Hana Securities, stated, "Future growth directions include the performance of new brands and the visibility of the cosmetics business as long-term tasks," adding, "The current stock price is only 5.2 times the 12-month forward price-to-earnings ratio (PER), but the potential for stock price appreciation is judged to be limited."

Despite increasing instability in the consumer economy in the second half of the year, department store sales, a major sales channel, have continued steady growth in July and August. Accordingly, Hansome's estimated sales growth rate in July is within 10%. At the end of August, the company plans to launch its own golf wear brand ‘Langbangblanc’, and in September, it will continue to expand its scale through the launch of the imported brand ‘Our Legacy’.

However, despite stable earnings improvement, the stock price and earnings momentum are expected to somewhat slow down. Hansome has historically followed a trajectory similar to consumer sentiment on the macro level and profitability improvement on the earnings side. It is expected that earnings momentum will weaken due to the possibility of gradual consumption slowdown caused by weakened consumer sentiment and short-term costs incurred from new brand launches. Accordingly, consolidated operating profit for the third quarter is forecasted to be around 33 billion KRW.

Meanwhile, consolidated sales and operating profit for the second quarter increased by 14% and 17% year-on-year to 357.4 billion KRW and 27.4 billion KRW, respectively, slightly below market expectations (OP 29 billion KRW). All categories continued solid sales growth with over 10% growth driven by improved clothing consumption. While key brands such as The Cashmere and Time performed well, the menswear brand showed a high growth rate of over 20%. By channel, offline and online sales each grew by 15%, continuing the improvement in channel mix. The operating profit margin rose slightly to 7.7% compared to the previous year. However, selling and administrative expenses ratio increased slightly due to costs associated with launching new brands like Liquid Perfume Bar and expanding stores.