To Open 10 Directly-owned Offline Stores in China in 2023
The author is an analyst of NH Investment & Securities. She can be reached at jiyoony@nhqv.com. -- Ed.
We cut our 4Q22 earnings estimates for The Nature Holdings, considering the warmer-than-usual weather conditions of November. But, we recommend loading up on the company’s shares upon share-price corrections, given its foray into the Taiwanese market and store opening in China, as well as economic reopening in Hong Kong.
Pay attention to 2023E earnings
With The Nature Holdings’ share price having rallied on expectations for solid earnings, now is the time for earnings confirmation. We draw attention to: 1) An expansion in Greater China sales: In line with a foray into the Taiwanese market and economic reopening in Hong Kong, overseas NG sales should soar 49% y-y in 2023 following the 103% y-y upsurge in 2022. In 2023, China sales are projected at W20bn, breaking down as online 60% and offline 40%. The Nature Holdings’ products have been available on Chinese online malls such as Tmall and Douyin since Nov 2022, and ten directly-owned offline stores are to be opened in the country this year. 2) Brand diversification: Barrel sales are set to skyrocket 108% y-y to W46.2bn in 2023, recovering to 80% of the 2019 level. A profit turnaround and synergies at the Chinese business are also likely. In addition, there is upside potential from Mark Gonzalez (1H23) and Brompton (2H23). 3) Strengthening brand power: In light of improving sales for children’s products, NG Kids annual sales should reach W100bn over the mid/long term.
4Q22 preview: Earnings dampened by unfavorable weather conditions
The Nature Holdings is expected to report consolidated 4Q22 sales of W227.6bn (+18% y-y) and OP of W57.1bn (+22% y-y), with both figures to fall short of our previous estimates and consensus. By brand, y-y sales growth for the quarter is estimated at: NG +12%, NG Kids +49%, and NFL +20%. Although it is disappointing that sales of padded jackets, which are key products for the firm, were delayed due to mild weather in November, NG should maintain sales growth of the 10% level thanks to a sharp increase in special sales to corporate customers. For NG overseas, we project solid sales of W4.1bn (+83% y-y), backed by both the firm’s transition from export to direct sales in Taiwan and Hong Kong’s reopening. As for subsidiary Barrel, we estimate sales at W4bn (-33% y-y). The brand decided not to hold a Barrel Day discount event in the quarter, as 4Q is generally an off-season for water sports and efforts are being made to boost margins after consolidation. In line, unlike in 3Q22 (W18.2bn), q-q sales volume decline is expected. Even when considering incentive payouts in 4Q22, we project consolidated OPM of 25.1%(+0.8%p y-y), with sales growth anticipated for all channels.