[Click eStock] "Silicontwo Faces Short-term Profitability Decline... Target Price Lowered"

Profitability Pressure to Continue in the Short Term
Cost Investments May Drive Brand and Channel Growth in the Long Run

Yuanta Securities announced on August 12 that it has lowered its target price for Silicontwo from 69,000 won to 57,000 won, citing continued short-term profitability pressure due to cost burdens. The investment rating remains 'Buy'.

Lee Seungeun, a researcher at Yuanta Securities, stated, "We have revised this year's earnings forecast downward, leading to a lower target price," adding, "In the short term, profitability is likely to remain under pressure due to increased marketing and logistics expenses." She further explained, "However, if these cost investments contribute to enhanced brand awareness and expanded global channels over the medium to long term, there is potential for future earnings leverage."

In the second quarter of this year, Silicontwo recorded sales of 265.3 billion won, up 46% year-on-year, and operating profit of 52.2 billion won, a 34% increase. However, this operating profit fell short of the market consensus of 57.1 billion won. Researcher Lee noted, "Selling and administrative expenses increased by 55.2% to 35.2 billion won, with logistics and marketing-related costs rising sharply: transportation expenses by 109.4%, advertising and promotion by 238.8%, and rental fees by 544.3%." She analyzed, "These factors, combined with one-off events such as U.S. tariff impositions and air shipments for Dubai branch test volumes, weighed on profitability."

For the third quarter, an increase in shipments is expected to drive revenue growth. Lee commented, "Third-quarter sales are projected at 290 billion won, up 9% from the previous quarter. As advance shipments for major global promotions such as Black Friday, Christmas, and Halloween are concentrated in September, shipment volumes are likely to expand in both the U.S. and Europe. To prepare for this, inventory assets in the second quarter rose by 35.6% from the previous quarter to 246.6 billion won, and inventory turnover days increased by 15.5 days, from 88 days to 103.5 days."

The analysis indicates that Europe and North America are leading growth, with Asia and the Middle East providing supplementary support in terms of regional growth structure. Lee explained, "By region, Europe is expected to drive growth through a significant expansion in results, while North America is anticipated to see external growth through retail channel expansion. In Asia, a slight rebound from the second quarter's sluggishness is expected as the impact of Indonesia's Lebaran holiday fades. In the Middle East, sales contributions will begin from the third quarter with the launch of the Dubai branch's sales operations."