[Click eStock] "Hwaseung Enterprise, Operating Rate 98%... Target Price Raised by 27%"

Operating Rate at 98% in Q2, Back to Pre-COVID Levels
Key Client Adidas Raises Operating Profit Forecast
"Margins Expected to Improve in Q2 and Further in H2"

Daishin Securities raised the target price for Hwasung Enterprise by 27%, from 11,000 KRW to 14,000 KRW on the 16th, citing the recovery of the shoe Original Equipment Manufacturer (OEM) industry, with operating rates returning to pre-COVID levels of 98%. The investment rating of 'Buy' was also maintained.

Yoo Jeong-hyun, a researcher at Daishin Securities, stated, "With the recovery of the shoe OEM industry, a sharp improvement in performance is expected from the second half of the year," adding, "Due to the change in the timing of reflecting results, the current operating rate in the second quarter has recovered to 98%, which is the pre-COVID level."

Researcher Yoo said, "From the second quarter, even if minor costs arise during the process of increasing idle equipment utilization rates, as in the first quarter, these costs are not significant and the operating rate is returning to a normal level," and added, "In mid-April, Adidas significantly raised its 2024 operating profit guidance from 500 million euros to 700 million euros based on faster-than-expected inventory depletion and strong sales, as announced in its preliminary first-quarter earnings report." Adidas is a key client of Hwasung Enterprise. Adidas turned to a loss for the first time in 31 years last year but is showing signs of recovery this year.

The recovery trend in the shoe OEM industry is clear. Taiwan's global OEM company, United Industrial, also raised its performance guidance this year based on favorable conditions in the upstream industry, showing a pattern of lower performance in the first half and higher in the second half this year. Hwasung Enterprise posted sales of 345.4 billion KRW and an operating profit of 5.3 billion KRW in the first quarter. Researcher Yoo noted, "Although the operating rate rose to about 95% in the first quarter, initial operating costs such as increased labor costs occurred, and about 2 billion KRW in costs related to obsolete raw materials were incurred, similar to the fourth quarter," adding, "This aligns with the company's statement that the first quarter is the bottom, and margins will improve in the second quarter and the second half, so it is not a major variable for the annual performance this year."