Coway Performs Well in Southeast Asia Amid Rental Industry Slump

Overseas Subsidiaries' Cumulative Q3 Sales Reach 1.0413 Trillion Won... 2.3 Times Growth in 4 Years
Malaysia Sales Expected to Surpass 1 Trillion Won This Year
Additional Southeast Asia Expansion Through 'Localization Strategy'

[Asia Economy Reporter Donghyun Choi] Despite the domestic rental industry’s third-quarter performance being sluggish due to rising raw material prices and decreased demand for home appliances, Coway has announced a surprising increase in earnings, drawing attention to the reasons behind this growth.

According to the Financial Supervisory Service’s electronic disclosure system on the 17th, Coway’s consolidated sales and operating profit for the third quarter of this year were 969.8 billion KRW and 165.1 billion KRW, respectively, marking increases of 3.8% and 0.8% compared to the same period last year. On a cumulative basis for the first three quarters, sales and operating profit reached 2.8795 trillion KRW and 513.7 billion KRW, up 5.8% and 2.5% year-on-year. Among rental companies that have announced third-quarter results so far, Coway is almost the only one reporting improved performance.

Coway explained that domestically, sales of innovative products including the Icon ice water purifier increased, driving the performance. Third-quarter domestic environmental home appliance business sales were 571.3 billion KRW, up 2.7% from the same period last year. Environmental home appliances account for about 60% of Coway’s sales and are its core business. The number of domestic environmental home appliance rental accounts increased by 26,000 in the third quarter alone, leading to performance growth. Kim Soon-tae, Coway’s Chief Financial Officer (CFO), emphasized, “We will continue to strengthen our research and development capabilities and consistently launch innovative products to maintain stable management performance despite challenging conditions.”

A notable aspect of Coway’s third-quarter results is the overseas subsidiary sales. Coway has overseas subsidiaries in eight regions including the United States, China, Europe, Japan, and Southeast Asia. As of the cumulative third quarter this year, overseas subsidiary sales reached 1.0413 trillion KRW. Sales, which were 451.4 billion KRW in 2018, have grown 2.3 times in four years. During the same period, the number of overseas subsidiary accounts increased from 1.11 million to 3 million.

Coway has subsidiaries in four Southeast Asian countries?Malaysia, Thailand, Vietnam, and Indonesia?effectively using the Southeast Asian market as a forward base for its overseas market. Among these, Malaysia is the core. Coway’s cumulative third-quarter sales from its Malaysian subsidiary were 814 billion KRW, accounting for 78% of total overseas subsidiary sales. As of the third quarter this year, the number of accounts in Malaysia increased by 24.1% year-on-year. There is also an expectation that sales, which were 353.4 billion KRW in 2018, will surpass 1 trillion KRW for the first time this year. A Coway official explained, “Since the fourth quarter of last year, the accounting method of the Malaysian subsidiary has been unified based on the headquarters’ standards. Removing this issue, Malaysia’s sales and operating profit have been growing at double-digit rates annually.”

Coway first entered Malaysia in 2007. The strategy was to transplant the rental marketing system, first introduced domestically in 1998, to Malaysia. Coway expanded its business through localization strategies. Due to the nature of the rental business, the size of the door-to-door sales organization for sales and maintenance is crucial. Coway composed most of its workforce with locals. It was the first in the water purifier industry to obtain 'HALAL' certification. Halal, an Arabic term meaning “permitted,” is a certification granted only to foods that are slaughtered, processed, and handled according to Islamic law, allowing Muslims to consume or use the products.

With the spread of Korean Wave culture such as K-pop and K-dramas in Southeast Asia, Coway plans to expand its “Korean-style rental” business to other Southeast Asian regions like Vietnam through localization strategies. A Coway official stated, “Considering Southeast Asia’s preference for drinking hot water, we are actively developing locally customized products that enhance user convenience, such as water purifiers specialized in hot water functions. In many neighboring countries, indoor air quality is poor due to smoke and haze drifting over from slash-and-burn agriculture. We plan to preempt the market by introducing air purifiers tailored to these conditions.”