[Click e Stocks] "Fila Holdings, Earnings Recovery Delayed"

[Asia Economy Reporter Song Hwajeong] Hana Financial Investment maintained its 'Buy' rating and target price of 53,000 KRW for Fila Holdings on the 12th, anticipating that it will take time for earnings and stock price recovery.

Seo Hyunjung, a researcher at Hana Financial Investment, said, "Despite the weak performance in the fourth quarter of last year, we maintain the target price by moving the valuation timing forward to 2022," adding, "Acushnet is entering a full-scale negative base period starting this year, and there is no clear earnings improvement in Fila's core domestic and U.S. sectors, so it will take some time for earnings and stock price recovery."

Fila Holdings' fourth-quarter earnings last year are expected to be weak. Hana Financial Investment estimates that Fila Holdings will record consolidated sales of 801.4 billion KRW, a 1% increase year-on-year, and operating profit of 20 billion KRW, a 71% decrease. This figure significantly underperforms the market consensus (operating profit of 74 billion KRW). Researcher Seo explained, "Domestic business sales are expected to grow 10% year-on-year due to the base effect, and design fees from China are also estimated to have recovered up to 10%, but U.S. business sales will decline by 9% due to a high base burden, and operating profit improvement will be limited due to the high possibility of one-time costs such as inventory disposal losses." Additionally, the royalty segment is expected to decrease by 3% due to weak sales in the European region, and subsidiary Acushnet is expected to see a 5% decrease in sales and an operating loss of 24 billion KRW, resulting in reduced profits.

Acushnet is expected to be a major factor in profitability deterioration by recording a 24 billion KRW loss. Researcher Seo said, "The seasonal off-season and the high base burden from the same period last year are significant, and costs related to technology development have also increased ahead of new product launches in the first half of the year," adding, "As of the end of the third quarter, Acushnet accounted for 65% of consolidated sales and 55% of operating profit, so the impact on earnings will be substantial."

Stock price momentum is expected to remain weak until earnings improvement becomes visible. Researcher Seo said, "Although the current stock price is only 6.8 times the 12-month forward price-to-earnings ratio (PER), stock price momentum will be weak until clear earnings visibility in the domestic and U.S. sectors and confirmation of mid- to long-term strategies to enhance brand asset value are established."

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