[Click e Stock] "Hwaseung Enterprise, Earnings Turnaround Expected... Target Price Up"

Shinhan Investment Corp. on the 18th raised the target price for Hwasung Enterprise from 10,000 KRW to 13,000 KRW, expecting a turnaround in earnings in the fourth quarter of this year. The investment rating was maintained as 'Buy.'

Hyunjin Park, a researcher at Shinhan Investment Corp., said, "We raised the target price by slightly adjusting the estimates and shifting the valuation timing to 2024," adding, "We recommend a buy approach, viewing the current stock price as the bottom, as this is a point where expectations for earnings recovery can grow."

A turnaround in earnings is expected in the fourth quarter. Researcher Park explained, "The average operating rate remained in the 80% range until the end of the first half, but it recovered to the 90% range after October, so improved earnings are expected in the fourth quarter," adding, "Fourth-quarter sales are expected to increase by 13% year-on-year to 435.1 billion KRW, and operating profit is expected to rise by 270% to 15.9 billion KRW, showing a reversal compared to the earnings trend from the first to third quarters."

The earnings recovery trend is also expected to continue next year. Researcher Park said, "Sales are expected to grow as the production share within Adidas increases (estimated at 19% in 2024)," adding, "Furthermore, the continuous increase in orders for finished shoes or sales of materials from brands other than Adidas suggests a base effect plus alpha, which is positive for next year's earnings."

Although issues such as non-performing inventory may arise in the short term, they are not expected to significantly impact earnings recovery. Researcher Park stated, "There is a possibility of issues related to non-performing inventory or goodwill impairment due to poor performance of clothing and textile manufacturing subsidiaries in the short term," but added, "However, since costs have been conservatively accounted for until the first half of this year following last year, it is judged that this will not significantly negatively affect the earnings recovery trend."