[Click eStock] "Taekwang, COVID Packademic Industry Recession Bottom... Target Price Down"

[Asia Economy Reporter Ji Yeon-jin] Eugene Investment & Securities announced on the 15th that Taekwang lowered its target stock price from the previous 12,000 KRW to 11,000 KRW due to a decrease in the expected book value per share (BPS) following a return to deficit last year.

Taekwang's sales in the fourth quarter of last year decreased by 29% year-on-year to 39.9 billion KRW, and operating profit turned to a loss of -5.2 billion KRW. Controlling shareholder net income was -

7.7 billion KRW. Operating profit margin, excluding the one-time bonus provision, also declined to -1.1%, suffering from fixed cost burdens due to decreased sales and exchange rate impacts.

However, when excluding one-time factors from last year's sales of 188.4 billion KRW, the operating profit margin recorded 4.1%. This year, if the order volume of 200 billion KRW from last year is maintained, the fixed cost effect will be realized, and a turnaround to profitability is expected due to the base effect from provisions. However, delivery delays caused by the pandemic in the second half of last year and a decrease in quarterly orders to the mid-40 billion KRW range in the second half suggest that sales in the first half of 2021 will inevitably remain low. Nevertheless, this year’s sales are projected at 195 billion KRW with an operating profit of 4.6 billion KRW (OPM 2.4%), and net profit is expected to reach 5.1 billion KRW, reflecting foreign exchange gains from exchange rate recovery, indicating a performance turnaround.

Researcher Choi Kwang-sik of Eugene Investment & Securities analyzed, "Taekwang, which was profitable until the third quarter of last year, set aside provisions of -3.3 billion KRW (annual -8.5 billion KRW) for inventory and accounts receivable in the fourth quarter, resulting in an annual return to deficit," adding, "All provisions, which appear to be part of a strict accounting policy, were fully recognized, and the industrial downturn caused by the worst pandemic is passing its bottom. It is only a matter of recovery slope, and like the recent stock price rebound, the industry is entering a recovery cycle."

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