[Click eStock] "Kyungdong Navien, Profitability Recovery Expected... Target Price Maintained"

DS Investment & Securities maintained a buy rating and a target price of 130,000 KRW for Kyungdong Navien on the 6th, stating that "growth and profitability rebound are expected from the first quarter of this year."

On the same day, Kim Suhyun, a researcher at DS Investment & Securities, said, "Kyungdong Navien's market expectations were somewhat lowered due to a performance miss in the fourth quarter of last year. However, since it was largely a one-time issue and export volumes are understood to be increasing, a recovery is expected in the first quarter of this year."

In the fourth quarter of last year, performance was weak due to a temporary decrease in volume and increased costs. During this period, sales amounted to 400 billion KRW, and operating profit was 33.8 billion KRW, representing a 6.7% increase and a 3.1% decrease year-on-year, respectively. The operating profit margin was 8.4%, below the average high 9% level of last year.

Researcher Kim analyzed, "Despite the rise in the KRW-USD exchange rate, the sales slump is likely due to inventory accumulation in North America before the Trump administration took office, some deferred volume effects, and the postponement of Hydro Furnace orders. The operating profit decline is estimated to be caused by promotional expenses related to new products in North America and increased selling and administrative expenses at the North American subsidiary due to the strong dollar." Kyungdong Navien's 'Condensing Hydro Furnace' is a home heating device that heats water and supplies warm air, tailored to the heating characteristics of the North American market.

However, a high growth rate in the North American business is expected to continue this year. Researcher Kim emphasized, "Growth of around 15% is expected to be restored due to increased export volumes, recognition of some deferred sales, and continued exchange rate effects. The North American furnace market is estimated at 5 million units annually, which is five times the size of the current condensing water heater market. Given the successful experience of pioneering the North American condensing water heater market, an annual sales volume of 250,000 to 500,000 units is entirely feasible."

He added, "The company also seems comfortable with sales exceeding 1.6 trillion KRW and an operating profit margin (OPM) of 10% this year," and noted, "It is worth watching with a longer-term perspective."