[Click eStock] "Fila Holdings, Continued Growth Centered on Royalty Income and Subsidiaries"

[Asia Economy Reporter Lee Jung-yoon] Shinhan Investment Corp. maintained its buy rating on Fila Holdings on the 27th, citing continued growth driven by global royalty income and subsidiaries, and raised the target price from 41,000 KRW to 44,000 KRW.

Fila Holdings' consolidated sales for the fourth quarter of last year increased by 5.1% year-on-year to 902.7 billion KRW, and operating profit rose by 72.9% to 43.5 billion KRW. Growth centered on Acushnet Holdings and royalty income is expected to continue. Acushnet Holdings' sales grew by 15% in KRW terms compared to the same period last year due to exchange rate effects, and global royalty income also increased by 27%, indicating a favorable trend.

However, the domestic and U.S. Fila corporations are facing difficulties. Domestic fashion consumption from October to November last year was less than expected for the seasonal peak due to climate effects. As of the third quarter of last year, the number of domestic stores was 450 and has been steadily decreasing, with the impact of closing inefficient stores expected to continue for some time. The U.S. corporation is also reportedly burdened by fixed costs due to sluggish sales. It is presumed that inventory turnover has not been smooth due to weakened consumer sentiment.

In China, Fila showed strength by posting the second-best performance after Nike during the Singles' Day period. The proportion of design fees from China in domestic separate earnings has gradually increased. More than 70% of domestic profits originate from Chinese commission income.

Additionally, the strengthening of the brand’s capabilities in the tennis line, which attracted attention in the second half of last year, is evaluated to have had a positive impact on improving Fila’s global image. Hyunjin Park, a researcher at Shinhan Investment Corp., stated, "It appears that efforts are being made to reinvent the brand as a performance brand through technological enhancement," adding, "Although overall momentum is still weak except for subsidiaries and some royalty income, we believe the opportunity for a full-scale turnaround is not far off as inventory reduction efforts and elimination of inefficiencies continue."

He further commented on Fila Holdings, "The turnaround trend in the core business is weak, so a strong upward trend in the stock price may be difficult, but in the long term, the current stock price could be at the bottom, so we maintain a buy rating."