[Click eStock] "Yeonwoo, Expectation of Recovery in Declined Domestic Sales... Target Price Down 11%"

Yuanta Securities Report

[Asia Economy Reporter Minji Lee] Yuanta Securities maintained a buy rating on Yeonwoo on the 16th but lowered the target price by 11% to 31,000 KRW. This adjustment reflects lowered expectations for domestic sales recovery due to delayed reopening, despite improvements in profitability.

Yeonwoo recorded consolidated sales of 68.3 billion KRW and operating profit of 6.4 billion KRW in the third quarter, marking growth of 8% and 22% respectively compared to the same period last year. Operating profit exceeded market expectations by 19%, reflecting increased efficiency from automation of production facilities.

The domestic segment grew by 18% to 29.3 billion KRW, while exports decreased by 4% to 29.2 billion KRW. Domestic growth was driven by a 31% increase in sales to major customers. Other domestic sales, consisting mainly of small and medium-sized brands, grew only 1% due to the impact of social distancing measures.

Regarding exports, sales to the U.S., which accounts for about 50% of total exports, grew approximately 3% to 18.2 billion KRW, but it is estimated that about 9 billion KRW was under-reflected due to logistics issues. Other regions continued to show weakness. Sales from the Chinese subsidiary fell 22% year-on-year to 3.2 billion KRW. Some of the unstable yield issues were absorbed domestically and are believed to be improving.

Researcher Eunjeong Park of Yuanta Securities explained, “The cost ratio fell by 4.7 percentage points due to scale expansion, mix improvement, and efficiency gains from automation system establishment, and the selling and administrative expense ratio also improved by 2.2 percentage points due to the reflection of one-time costs in the previous year.”

For the fourth quarter, consolidated sales are expected to reach 70.1 billion KRW and operating profit 7.7 billion KRW, representing increases of 5% and 15%, respectively. Domestic and export growth rates are estimated at -1% and 11%, respectively. The U.S. customer orders remain strong, with steady demand following the market launch of renewed products earlier this year. Researcher Park analyzed, “The order trends of major customers are important, but with the reopening transition stalling, overall domestic expectations have been lowered. If the transition speed improves, there is also a possibility of an industrial environment shift, such as brand companies securing inventory and responding to demand.”

This content was produced with the assistance of AI translation services.