[Click eStock] "Hwaseung Enterprise, Vietnam Performance Slumps"... Target Price Down

[Asia Economy Reporter Lee Jung-yoon] Korea Investment & Securities announced on the 10th that it has lowered the operating profit estimate for Hwasung Enterprise's Vietnam subsidiary by 17% this year due to a shortage of new personnel, and cut the target stock price from the previous 25,000 KRW to 22,000 KRW. However, the buy rating was maintained due to strong demand in the upstream industry and expectations for second-half performance.

Hwasung Enterprise's sales in the fourth quarter of last year increased by 14% year-on-year to 336.8 billion KRW, while operating profit for the same period decreased by 93% to 1.6 billion KRW. The operating profit fell short of estimates by 85%, which is analyzed to be due to the poor performance of the Vietnam subsidiary.

Park Ha-kyung, a researcher at Korea Investment & Securities, explained, "Vietnam's fourth-quarter sales likely decreased by 30% year-on-year due to shipment disruptions," adding, "The annual consolidated operating loss reached 29 billion KRW due to the burden of fixed costs caused by a decline in operating rate and the occurrence of employee lodging and meal expenses." However, in the case of the Indonesia subsidiary, production volume increased as a counterbalance to the poor performance of the Vietnam subsidiary, and annual sales and operating profit rose by 33% and 18% year-on-year, respectively.

Researcher Park forecasted that Hwasung Enterprise will experience high growth starting from the second quarter of this year. He said, "With the acquisition of the Nike apparel factory expected to be completed by March this year, related performance will be recognized from the second quarter, and the annual sales contribution of the apparel business is expected to be 100 billion KRW," adding, "From the second half of the year, inventory accumulation by clients will accelerate, and with the operation of new capacity in Indonesia, both scale and profitability are expected to improve significantly."

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