Hyundai Ezwel
The author is an analyst for NH Investment & Securities. He can be reached at jack.baek@nhqv.com -- Ed.
Hyundai Ezwel boasts a highly-stable business structure thanks to customer diversification. It is continuing to display brisk earnings growth, with 2023 OP looking primed to rise 16% y-y. Considering its attractive business model and historical P/E band, its shares look undervalued at their current trading point (2023E P/E of 8.7x).
2Q23 positives to catalyze 2H23 earnings
Building on 1Q23, we expect Hyundai Ezwel to deliver sound earnings for 2Q23 as well. In 2Q23, the company won W36bn worth of orders from Gyeonggido Job Foundation’s ‘youngMall’, for which Hyundai Ezwel boasts a 100% online usage rate. Considering the firm’s average online usage rate of 37%, the order size is large, amounting to more than 5% of its total transactions. Having generated since May, sales should pick up steam in earnest from 2H23. Meanwhile, another hefty order (W70bn) from a major customer is expected by July at the latest.
We view the key element in Hyundai Ezwel’s earnings performance as being labor costs, noting that its other cost-increase factors are minimal. After being acquired by Hyundai Department Store (HDS) Group, Hyundai Ezwel engaged in a wave of salary hike and new hiring activity that was completed at end-2Q22. Its total number of employees surged from 325 in 2021 to 359 in 1H22, but the pace of hiring then slowed (367 employees as of end-1Q23). Given such, we believe that even if labor costs increase in 1H23, OPM will improve significantly from 2H23.
Valuation appeals at 2023E P/E of 8.7x; to show robust share price performance in 2H23
We forecast consolidated 2023 sales of W129.1bn (+14.8% y-y) and OP at W21.8bn (+16.0% y-y), appealing numbers given that the firm’s shares are currently trading at a 2023E P/E of only 8.7x. Structural mix improvement looks to be continuing in the wake of the HDS Group’s acquisition, with sales portion for home appliances shrinking and for high-margin consumer goods (including cosmetics, fashion, and furniture) rising. We anticipate witnessing sound share price throughout 2H23.