"Sales Soared in the U.S." Frenzy, Yet This Stock Remains Undervalued at a PER of 5 [Weekend Money]

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It has been analyzed that the stock price of Aurora, a toy specialist company, is likely to be re-evaluated on the back of strong performance in the United States and expectations of improved financial structure.

Kim Sunghwan, a researcher at Da-in Asset Management, emphasized that "Aurora's market capitalization stands at KRW 110 billion as of mid-April, with a price-to-earnings ratio (PER) of around 5 based on this year's net profit attributable to controlling shareholders," highlighting its undervaluation.

Researcher Kim explained, "Despite annual sales growth of about 20% and an operating margin in the low-to-mid 10% range, primarily in the United States, the company is still trading at a low valuation. This is due to a combination of factors: borrowings of approximately KRW 330 billion as of the end of last year and limited communication with shareholders." However, the company has announced plans to strengthen quarterly performance communication starting this year and to gradually reduce its borrowings through the sale of investment properties.

There is also clear room for improvement on the financial side. Kim noted, "As of the end of last year, Aurora’s investment property book value was about KRW 127.8 billion," adding, "The fair value of these investment properties has been disclosed at KRW 292.8 billion." He continued, "The market value is expected to be higher than the fair value, and should a sale occur, it could lead to both a reduction in borrowings and a shift in the market’s perception of the company’s financial structure."

The key driver of business growth is its own IP, 'Parm Pals.' Kim stated, "The growth trend that has continued over the past two years is likely to persist this year, as the growing recognition of Parm Pals is directly translating into sales growth." He further pointed out, "The age range of consumers is expanding from infants to teenagers and adults, and the product categories are broadening from plush toys to lifestyle goods such as pouches. As of the end of last year, Parm Pals accounted for about 30% of sales at the U.S. subsidiary."

Despite external factors such as tariff burdens, growth has been sustained. Kim explained, "Due to tariff policies under the Trump Administration, the tariff burden on plush toys imported into the U.S. has increased since last year. However, most major competitors in the U.S. market also manufacture outside the U.S., so price increases due to tariffs were inevitable across the industry."

He added, "Aurora also raised prices in the U.S. market, which put some pressure on demand, but even so, U.S. sales grew by 25% last year. This indicates that consumer awareness of the company's own IP, led by Parm Pals, has reached a certain level."

The effects of M&A activities are also being reflected in earnest. Kim said, "Mary Meyer, which was consolidated from the third quarter of 2024, contributed to sales growth in the U.S. market. Mary Meyer offers product categories that Aurora previously did not have, and sales are being made through Aurora’s diverse distribution channels established since the 1990s."

Global expansion is also becoming evident. Kim noted, "Thanks to the popularity of proprietary IP brands such as Parm Pals, the UK subsidiary’s sales grew by 31% and the Hong Kong subsidiary’s sales by 27% last year. Considering that both subsidiaries had stagnant sales from 2022 to 2024, this marks the beginning of a renewed growth phase since last year."

Along with improved performance, profitability is also expected to increase. Kim explained, "Aurora is targeting consolidated sales of around KRW 400 billion this year. Given its cost structure, which has a high proportion of fixed costs, the company can expect to benefit from operating leverage as sales increase." He added, "The company is also aiming to improve its consolidated operating margin from 13.6% last year to around 15% this year."

The company’s shareholder return policy is also seen as a positive factor. Kim pointed out, "Last year, Aurora decided on a total dividend of KRW 600, including an interim dividend of KRW 100. With the current share price at about KRW 10,000, this puts the dividend yield at around 6%."

He emphasized, "If the trend of improved performance continues and strengthened shareholder communication and lower borrowings are actually confirmed, there is significant potential for the valuation discount factors to gradually ease."

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