[Click eStock] "Youngone Corporation Secures Order Stability and Unit Price Competitiveness... Target Price Up"

[Asia Economy Reporter Kwon Jaehee] Shinhan Financial Investment maintained its 'Buy' rating on Youngone Corporation on the 17th and raised the target price to 63,000 KRW.

Youngone Corporation recorded an earnings surprise in the second quarter following the previous quarter. The consolidated sales for Q2 reached 945.6 billion KRW, a 39.5% increase compared to the same period last year, and operating profit was 208.1 billion KRW, up 98.3% during the same period. These results exceeded market expectations by more than 35%, attributed to increased orders from the Americas and Europe.

Notably, inventory at the end of Q2 increased by more than 19%, raising sales expectations for the next quarter. OEM sales grew over 50% in dollar terms, driven by increased demand in the spring and summer seasons and higher orders for the peak fall/winter season. Subsidiary Scott's sales grew 6.8% year-on-year, performing better than expected, while steadily improving margin contributions. Major buyers such as The North Face, Lululemon, and Engelbert Strauss, all sports and outdoor brands, are showing strong growth, and orders for functional knitwear are positively impacting product mix improvements.

Concerns about the business environment in the second half are common among OEM companies, but Youngone is expected to have more stable order intake compared to other OEMs with a high proportion of mass retailer buyers, due to steady performance from global athleisure and outdoor brands.

Despite rising raw material prices, profits in the previous quarter roughly doubled compared to the same period last year, suggesting improved competitiveness in order pricing. Additionally, the base effect of Scott may become more prominent, and if the current trend continues, operating profit margin exceeding 20% in 2022 is considered achievable.

Researcher Park Hyunjin of Shinhan Financial Investment stated, "It is positive that Youngone is enhancing price competitiveness by changing product mix and increasing production share, but with growing macroeconomic uncertainties, overall OEM performance growth is slowing in the second half. Despite the earnings surprise, in an industry atmosphere where future earnings estimates cannot be significantly raised, Youngone is expected to be the only company to raise its second-half earnings expectations."

Researcher Park added, "Youngone is significantly undervalued compared to global peers, so we recommend a buy rating."