[Click eStock] "Hwaseung Enterprise, Factory Operation Rate Normalizes... Target Price Up 17%"

Daishin Securities Report

[Asia Economy Reporter Minji Lee] Daishin Securities maintained a buy rating on Hwasung Enterprise on the 16th and raised the target price by 17% from the previous level to 21,000 KRW.

Second-quarter sales and operating profit reached 452.4 billion KRW and 26.1 billion KRW respectively, marking growth of 49% and 118% compared to the same period last year. The operating rate, which had declined due to investment in a satellite factory in Vietnam last year, showed signs of recovery starting from the first quarter of this year.

Due to a sharp increase in COVID-19 cases in Vietnam, a major production site, the factory operating rate fell to the 60% range in the third quarter of last year but began rising to an average of 96% in the second quarter of this year, normalizing factory operations. Researcher Junghyun Yoo of Daishin Securities analyzed, "The profit improvement is largely due to sales recovery from the rise in operating rates," adding, "The effect of the exchange rate increase has also been fully reflected."

Concerns about a slowdown in the upstream industry economy are growing due to weak demand caused by rapid price increases, as client Adidas lowered its performance guidance for this year in July. However, the company is normalizing factory operations even amid the consumption downturn.

Researcher Junghyun Yoo stated, "The performance momentum is greater due to the production of high-priced new products," and analyzed, "Although Adidas currently has high inventory levels, the impact on orders in the third and fourth quarters will be limited due to product lineup changes with new product launches in the fourth quarter."