20170524-三星证券-US_recovery_to_spark_turnaround_at_Korean_OEMs_41页_1mb

报告摘要

Sector Update Summary

Core Content

This document provides an analysis of the Korean apparel OEM sector, focusing on two major companies: Hansae (105630 KS) and Youngone Corporation (111770 KS). The report highlights the improving outlook for the US apparel industry and its implications on the performance of Korean OEMs. It reinstates coverage of the sector at OVERWEIGHT and both companies at BUY, with respective target prices of KRW33,000 and KRW44,000.

Main Views

The US apparel industry is showing signs of recovery, with retail sales rising and inventory levels declining.
This recovery is expected to benefit Korean OEMs, particularly Hansae and Youngone, as they are heavily reliant on US market orders.
The report forecasts that both companies will see improved earnings in the second half of 2017 (2H17), driven by the rebound in US apparel demand and inventory restocking.
Hansae is expected to outperform Youngone due to its stronger exposure to the US market and greater potential for growth from the casualwear segment.
The report suggests that the US macroeconomic indicators (including retail sales, job market, and wage growth) are positive and indicate a recovery in consumer spending and purchasing power.

Key Information

Market Performance of Korean OEMs

Hansae and Youngone were previously underperforming and had corrected sharply in 2016 due to weak US demand.
The US apparel market has experienced a two-year downturn, with declining sales, store closures, and rising inventories.
However, with the US market now showing signs of recovery, orders for Korean OEMs are expected to rebound, leading to improved earnings.

US Apparel Industry Trends

US apparel retail sales increased by 0.5% y-y in April 2017.
The wholesale inventory/sales ratio has been trending down since March 2016, indicating a healthier market.
Consumer sentiment and PCE (Personal Consumption Expenditures) are improving, with the University of Michigan CSI reaching 97.7 in May 2017.
Hourly wages in the US have been rising faster than inflation since 2016, which is expected to boost disposable income and purchasing power.

Company-Specific Outlook

Hansae

Focuses on casualwear and has a 93% share of OEM sales from the US.
Sales and operating profit are projected to rise by 20.9% and 23.1% in 2017 to KRW1.87t and KRW100.5b, respectively.
The company’s enterprise value is expected to increase due to the recovery in the downstream apparel industry and its growing capabilities in original design manufacturing.
The takeover of MK Trend in July 2016 is viewed as a long-term growth strategy rather than a near-term synergy play.

Youngone

Has a 47% share of OEM sales from the US and owns the Scott bicycle brand.
Sales and operating profit are projected to rise by 6.8% and 14.7% in 2017 to KRW2.1385t and KRW205.8b, respectively.
The company is diversifying its revenue streams beyond OEMs and is expected to benefit from the upturn in the US apparel industry and restocking by buyers.

Competitive Landscape

US retailers such as The Gap, Target, Walmart, L Brands, and American Eagle Outfitters are key buyers for Korean OEMs.
The Gap is showing signs of recovery, with a 1% y-y sales increase in FY4Q17 and plans to expand its online presence.
Target is investing heavily in online sales, which grew by 34% y-y in FY4Q17.
Walmart is improving its online sales and diversifying its customer base, with online sales rising 29% y-y in 4QFY17.
L Brands is expected to place more OEM orders in 2H17 due to planned promotions and product launches.
VF Corporation is shifting focus to B2C sales and is expected to rebound in 3Q17 with wholesale volume recovery.
Lululemon is expanding globally, especially in China, where the athleteisure market is expected to grow significantly.

Risk Factors

The US apparel market is still facing inventory risks and slow sales growth.
Trade protectionism under the Trump administration, including the border-adjustment tax, could pose a risk to the global apparel industry.
However, the report argues that US brands are unlikely to shift production to the US due to the high labor costs.
Vietnam is expected to supplant China as the primary apparel production base due to cheaper labor and better infrastructure.

Investment Ideas

The US apparel industry is expected to turn around in 2H17, with inventory restocking and increased demand.
Korean OEMs such as Hansae and Youngone are well-positioned to benefit from this recovery due to their strong market presence, cost competitiveness, and diversified client base.
Hansae is preferred over Youngone due to its greater exposure to the US market and stronger growth potential in the casualwear segment.
The report suggests buying into any weakness in the first half of 2017, as the US market is likely to rebound in the second half.

Conclusion

The Korean apparel OEM sector is showing signs of recovery, driven by improving US consumer demand, declining inventories, and increased orders from key buyers. Hansae and Youngone are both expected to benefit from this trend, with Hansae being the stronger investment due to its greater US market exposure and potential for faster earnings growth. The report highlights Vietnam as a key production base and predicts a shift from China. Despite short-term risks from trade policies, the long-term outlook for Korean OEMs remains positive.