Malaysia Revenue Projected to Grow 16% YoY in 2022
The author is an analyst of KB Securities. She can be reached at shinay.park@kbfg.com. -- Ed.
Cut target price 10% to KRW90,000; stock undervalued
We maintain BUY on Coway but cut our TP by 10% to KRW90,000 to accommodate an increase in WACC (7.55%→8.29%) amid negligible revisions to earnings estimates. Despite solid earnings and valuation merit, the stock, which is currently undervalued at 8.0x 12m fwd P/E, has been struggling because of the market’s lack of interest in value stocks with steady cash flow.
Malaysia: Top-line to grow 16% YoY in 2022; growth to be sustained with new product releases in 2H22
We see Malaysia revenue growing 16% YoY in 2022 (18% YoY excl. accounting rule changes). Although growth for the subsidiary was previously in the 30-40% range, new product releases should sustain growth in 2H22. We note that a new point-of-entry water purifier was released in May. Also, the subsidiary plans to (1) boost air purifier sales with the introduction of a new sales system in 2H22 and (2) release new mattresses in 4Q22.
3Q22 preview: Revenue/OP growth of 8% YoY/5% YoY, in line with market consensus
We forecast 3Q22 consolidated revenue of KRW1.0tn (+8% YoY) and OP of KRW172.7bn (+5% YoY), in line with the market consensus.
(1) Domestic (standalone) revenue/OP should be KRW707.8bn (+3% YoY)/ KRW116.8bn (+12% YoY). New rental sales should grow 2.5%, with monthly avg. cancellation rate remaining below 1%. No. of rental accounts should increase net 58,000 QoQ, with no. of expiring accounts at 146,000. We see OPM improving 1.3pp YoY to 16.5%.
(2) Malaysia revenue/OP is expected to grow 13% YoY/0.4% YoY; excluding accounting rule changes (made in 4Q21), we estimate revenue/OP growth of +19% YoY/+32% YoY.
(3) U.S. revenue should grow 5% YoY, with OP at KRW3.7bn (-21% YoY; 6.0% OPM). We anticipate high-demand seasonality (start of new school year) but note looming economic uncertainty.