[Click e-Stock] Handsome Expected to Turn Around in Second Half... Target Price Lowered

Target Price Lowered from 19,000 Won to 18,000 Won

On August 5, Hanwha Investment & Securities maintained its 'Buy' investment rating on Handsome, anticipating a turnaround in performance in the second half of the year. The target price was revised downward from 19,000 won to 18,000 won.

Lee Jinhyup, a researcher at Hanwha Investment & Securities, stated, "The target price was slightly lowered to reflect the downward revision of earnings forecasts," and explained, "It is more important to focus on the potential for a performance turnaround in the second half rather than the sluggish results in the first half."

In the second quarter of this year, Handsome recorded sales of 338.1 billion won, down 1.1% year-on-year, and operating profit of 700 million won, down 82%. Lee noted, "While sales were generally in line with market expectations, operating profit fell short of the market consensus of 3.8 billion won," and analyzed, "The continued weakness in the consumer market through the second quarter led to disappointing results."

Although sales growth continued for edited brands and new brands, overall performance was weak due to sluggish sales of character brands, which account for a large share of sales and have high profitability. This resulted in weak topline growth and deterioration in gross profit margin (GPM). Lee explained, "The decline in GPM was inevitably affected by the continued sale of previous years' inventory through the first half," and added, "Overall, the nature of the underperformance was not significantly different from the previous quarter."

There are expectations for a turnaround starting from the third quarter. Lee forecasted, "We expect a shift toward profit growth from the third quarter," and said, "Recently, consumer sentiment has been improving, and with the implementation of consumption-boosting policies such as livelihood support payments, real consumption improvement is anticipated to materialize from the second half. Accordingly, a rebound in fashion sales, which are sensitive to economic conditions, is also expected."

Along with the improvement in the consumption environment, inventory pressure is expected to ease. Inventory from the 2023 spring-summer (SS) season has been a burden. From the 2023 fall-winter (FW) season, inventory pressure was reduced through responsive production, taking into account sluggish consumption. Lee said, "For this reason, GPM pressure from discount sales of previous years' inventory was inevitable through the first half, but from the second half, this is expected to gradually resolve, allowing for a rebound in GPM."