[Click eStock] "Coway, Stable Cash Flow and Increased Overseas Proportion... Target Price Maintained"

Shinhan Investment Corp. maintained its buy rating and target price of 68,000 KRW for Coway on the 23rd, stating that "it will generate stable cash flow and the proportion of overseas sales will also increase." The previous day's closing price was 55,000 KRW.

On the same day, Jo Sang-hoon, a research fellow at Shinhan Investment Corp., said, "Since last year, uncertainty about Coway has increased due to the major shareholder's asset securitization plan," but added, "The business model that generates stable cash flow regardless of the consumer economy is attractive and not significantly affected by changes in the largest shareholder." He also evaluated, "The proportion of overseas sales, which is a core part of corporate value, is expected to reach 37% this year and continue to rise, and the recent renewed interest in personal hygiene is also positive."

He projected that Coway's sales and operating profit for the fourth quarter of last year were 1.2 trillion KRW and 164.6 billion KRW, respectively. These results were below market expectations. The causes of the poor performance were cited as ongoing competition in Malaysia and increased domestic costs. Research fellow Jo analyzed, "Domestic rental sales are favorable. Accounts also increased net. Accordingly, separate sales will increase by 4%. Although ownership rights for accounts sold five years ago have increased, this was overcome by creating new customers through the launch of innovative products."

He added, "However, due to increased advertising and promotion expenses for BEREX and higher research and development (R&D) costs, operating profit will only increase by 3%. In Malaysia, operating profit will slightly decrease due to a downturn in the consumer economy, intensified competition, and rising costs of air purifier filters. In the U.S., sales will increase by 7% thanks to favorable distribution channels, maintaining operating profit growth, and in Thailand, sales are expected to grow rapidly with a 25% increase in the fourth quarter of last year."

The growth momentum in Malaysia, which has experienced high growth over the past eight years, is slowing down. The penetration rate of water purifiers in Malaysia is estimated to be in the low 60% range. The main customer income groups are the top 20% and the middle 40%. The key to future growth lies in ▲ expanding the customer base for water purifiers ▲ and expanding the market for new home care products such as air conditioners and massage chairs. Coway's strategy is to increase market share by launching mid-to-low priced products and enhance growth potential through home care products.

The next market to watch is Thailand. Research fellow Jo said, "Although the Thai subsidiary was established in 2003, growth was slow due to underdeveloped financial infrastructure. Recently, it has been growing rapidly thanks to the development of financial infrastructure and strengthening of sales personnel," adding, "In the third quarter of last year, the number of rental accounts in Thailand was 191,000, a 50.6% increase compared to the same period last year, and healthy account growth continued in the fourth quarter as well."