[Click eStock] "Hanssem, Profitability Improvement Later Than Expected... Target Price Down"

Target Price Revised Downward by 5.8% Compared to Previous Level

On the 10th, KB Securities downgraded the target price for Hanssem from 77,000 KRW to 72,500 KRW, citing slower-than-expected profitability improvement. The investment rating was maintained at 'Buy.'

Jang Moon-jun, a researcher at KB Securities, explained, "The target price was lowered by 5.8% compared to the previous estimate, reflecting a downward revision of operating profit forecasts due to slower-than-expected profitability improvement. Although earnings and stock price volatility may be high for the time being, we maintain our view that the operating environment surrounding the company is beginning to exit its worst phase, and that recovery of competitiveness in the single-item remodeling market → structural cost ratio improvement → medium-term profit growth → securing dividend sustainability will be possible."

Hanssem recorded consolidated sales of 478 billion KRW and operating profit of 7.1 billion KRW in the second quarter of this year. Sales decreased by 7.1% year-on-year, and operating profit increased by 476.5% year-on-year but decreased by 45.6% compared to the previous quarter. Researcher Jang stated, "The main causes of the poor performance were sluggish sales due to the reduction of high-cost unprofitable businesses and the recognition of a 4.6 billion KRW allowance for doubtful accounts related to the Timef incident." He added, "In the third quarter, sales are expected to decrease by 1.3% year-on-year to 474.5 billion KRW, while operating profit is forecast to increase by 61.8% to 8 billion KRW." He continued, "This reflects the traditional off-season impact, sluggish B2B (business-to-business) sales, and remaining allowance for doubtful accounts related to the Timef incident. Net income attributable to controlling shareholders is expected to turn positive at 126.5 billion KRW, considering a gain of 170 billion KRW from the sale of the Sangam office building, which is expected to be completed in September."

He emphasized the importance of meaningful cost ratio recovery. Researcher Jang said, "If the key driver of past stock price increases was simultaneous growth in scale and profit, this time, profit growth due to structural cost ratio improvement will be the critical point. Although scale growth will be limited, it is important whether meaningful recovery of the cost ratio is possible as the sales mix changes with a focus on highly profitable remodeling single items (kitchens, bathrooms)."

He forecasted a high possibility of positive changes, even if it takes time. Researcher Jang stated, "A stock purchase strategy for Hanssem based on increased trading volume is outdated. Considering the weakened consumer sentiment and elevated housing prices, it is difficult to be confident that increased trading volume will lead to increased demand for package construction. Therefore, Hanssem's recent tactical shift to recover market dominance in highly profitable remodeling single items, which have smaller transaction sizes, appears timely."