[Click eStock] "F&F, Operating Environment to Improve from Q3"

KB Securities Report

[Asia Economy Reporter Minji Lee] KB Securities maintained a buy rating on F&F on the 3rd and raised the target price by 8% to 230,000 KRW.

In the first quarter, F&F recorded sales of 437.1 billion KRW and operating profit of 134.6 billion KRW, increasing by 57% and 943% respectively compared to the same period last year. Sales and operating profit exceeded market expectations by 7% and 22%, respectively.

Shinae Park, a researcher at KB Securities, said, "Operating profit margin improved by 5.9 percentage points year-on-year to 30.8% due to the leverage effect from the sharp increase in sales," adding, "The cost ratio rose by 1 percentage point as the contribution of sales from Chinese agencies increased."

By segment, MLB Korea's pure domestic sales increased by 55% year-on-year to 70.2 billion KRW, while duty-free sales grew by 2% to 67.6 billion KRW. Discovery's sales grew 18% year-on-year to 111 billion KRW despite a high base. MLB Kids' duty-free sales declined by about 10% year-on-year, but domestic sales increased by 23%, showing solid growth. Thanks to a surge in exports to its Chinese subsidiary, total sales rose 39% to 29.5 billion KRW. The Chinese corporation's sales reached 150.9 billion KRW, growing 205%. Offline sales increased by 243% to 134 billion KRW, and online sales grew 63% to 16.9 billion KRW.

Despite COVID-19 related lockdown measures in China in March, deliveries to Chinese agencies proceeded smoothly, allowing the Chinese corporation's first-quarter sales to maintain strong growth. However, as the lockdown measures are expected to last longer than anticipated, negative impacts on the Chinese corporation's sales in April and May are inevitable.

Researcher Park said, "The impact of store closures in major urban commercial districts, where sales per store are relatively high, will be reflected," adding, "The second-quarter operating profit estimate has been lowered by 12% from the previous forecast, but the operating environment is expected to normalize from the third quarter."

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