20171115-三星证券-Passing_the_worst_6页_303kb

Sector Update Summary

Core Content

This document is an investment report by Sanghoon Cho from Samsung Securities, analyzing the performance and valuation of two South Korean apparel companies: Hansae and Youngone. The report is dated 2017. 11. 15 and provides insights into their third-quarter results, forecasts, and target prices.

Main Points

Hansae (105630 KS, KRW27,650)

• Target Price: KRW33,000 (19.3% upside)
• Performance:
  • 3Q consolidated sales increased by 19% y-y to KRW496.8b.
  • Operating profit rose by 29.3% y-y to KRW35.1b, the first increase in six quarters.
  • OEM sales grew 2.7% y-y in dollar terms and 3.8% y-y in won terms due to a 1% rise in the KRW/USD exchange rate.
  • The OEM division's operating profit increased significantly, contributing to the overall growth.
  • Subsidiary Hansae MK saw a 2.4% sales increase but turned to an operating loss due to increased discount product sales and new NBA Kids stores in China.
• Valuation:
  • Shares trade at 13x 2018 P/E, a 24% discount to peers.
  • The analyst maintains a BUY rating with an unchanged target price.

Youngone (111770 KS, KRW33,850)

• Target Price: KRW42,000 (24.1% upside)
• Performance:
  • 3Q consolidated sales grew by 0.7% y-y to KRW551.3b.
  • Operating profit remained flat y-y at KRW52.9b, missing consensus by 11%.
  • Dollar-based OEM sales increased by 3.9% y-y, while won-based sales grew by 5% y-y.
  • The brand distribution unit (including Scott Sports) saw a 0.2% sales decline and an operating loss of KRW4.4b.
  • Scott Sports recorded a net loss of KRW11.7b, driven by forex losses and interest expenses.
  • SG&A costs-to-sales ratio rose by 1.8% pts to 16.9% due to air charge fees.
• Valuation:
  • Shares trade at 10.4x 2018 P/E, a 38% discount to peers.
  • The analyst lowers the 2018 EPS forecast by 5% and the target price by 5% to KRW42,000, reflecting concerns about Scott Sports.
  • The analyst maintains a BUY rating but adjusts the target price.

Key Information

• Industry Outlook: The apparel market is improving, but OEMs need to prepare for changing order trends by reducing lead times and leveraging economies of scale.
• Investment Recommendations:
  • Hansae: Maintain BUY with an unchanged target price of KRW33,000.
  • Youngone: Lower target price to KRW42,000 due to uncertainties related to Scott Sports.
• Valuation Gaps: Domestic OEMs need to expand new orders and increase investments in vertical integration and automation to narrow valuation gaps with global competitors.
• Performance Trends: Both companies show mixed results, with Hansae outperforming expectations and Youngone underperforming.

Summary Table

Conclusion

The report highlights that while the apparel sector is recovering from its worst, Hansae is better positioned to capitalize on the changing trends due to its strong performance and effective response to market dynamics. Youngone, on the other hand, faces challenges with its brand division and Scott Sports, leading to a revised target price and continued monitoring. Investors are advised to consider the valuation gaps and strategic moves of domestic OEMs in the context of global competition.