[Click eStock] "Hwaseung Enter, Earnings Growth as a Given... Expectation for Valuation Re-rating"

IV Research analyzed on the 30th that Hwaseung Enterprise is expected to experience valuation rerating along with earnings growth. No investment opinion or target price was provided.

Hwaseung Enterprise is a company that manufactures shoes for Adidas through Original Design Manufacturing (ODM). IV Research assessed that Hwaseung Enterprise's stock price has not reflected the rise in its client's stock price.

IV Research stated, "Adidas's earnings began to decline after peaking in 2021, and its stock price also showed a downward trend until the end of 2022," but added, "From 2023, earnings have been recovering quarterly, and the current stock price has risen 140% compared to the low point in 2022." They further noted, "Yuwon Industrial, a competitor of Hwaseung Enterprise, also saw its stock price more than double from the low point this year, supported by improvements in its client's earnings."

They particularly analyzed that earnings are also improving. IV Research said, "Operating profit decreased to 13 billion KRW in 2023, but the consensus for this year's operating profit is 74.2 billion KRW and 104.7 billion KRW for next year, showing a significant increase, yet the stock price remains at a bottom level," adding, "The turnaround began with earnings surprises starting from the second quarter, and the trend continues into the third quarter." They emphasized, "From the fourth quarter through next year, the company is expected to secure orders for high-profit steady-seller products from its client, leading to sales growth and profitability improvement."

Along with this, they emphasized the potential benefits from the running shoe market expansion. IV Research explained, "According to Yuwon Industrial's August earnings comments, Adidas's running shoes showed 30% growth," and added, "Since the proportion of running shoe sales within Hwaseung Enterprise is steadily increasing, it is judged that the company can sufficiently benefit from the market expansion of running shoes." They further stated, "Hwaseung Enterprise already has a 20% sales proportion from running shoes, so it is a timing to expect valuation rerating."