Textile/apparel
The author is an analyst for Shinhan Securities. She can be reached at hpark@shinhan.com -- Ed.
Strong top-line growth continuing in the domestic market
Gamsung Corp sells Snow Peak brand apparel under its licensing agreement with the Japanese camping brand. The company's rapid growth in earnings has continued from 2022 to sales of KRW71.2bn (+72% YoY) and operating profit of KRW12.2bn (+200% YoY) in 1H23. Sales from the apparel business (Snowpeak Apparel) came in at KRW61.1bn and the mobile accessory business (Actimon; power banks and others) at KRW9.6bn, accounting for 87% and 13% of the total, respectively. Total offline stores increased from 84 in 2021 to 131 in 2022 and 148 in 1H23, and should easily reach 160- 170 stores in 2023 at the current pace of expansion.
Peak season sales of the apparel brand average around KRW100mn per store, placing it at the mid/upper-range in the casual wear segment of domestic top-tier brands. Current growth is on par with the increase in sales of F&F's Discovery brand following its launch in 2012. After starting off with a focus on men’s casual wear, Snowpeak Apparel has been expanding to women’s and kids’ clothes while increasing marketing efforts through collaboration projects with popular online retailers such as Musinsa.
Stepping up as a top-tier at home and starting to expand overseas
For full-year 2023, Gamsung Corp is expected to post sales of KRW195bn (+66% YoY) and operating profit of KRW33.1bn (+104% YoY), notably outperforming the -2% to 3% YoY growth forecast for the domestic apparel market as a whole. Earnings expectations have been revised up from previous projections of KRW160bn in sales and KRW26.5bn in operating profit.
Margins have been steadily rising on the larger online sales share and higher markup (selling price to cost ratio) of the company's apparel brand vs. domestic rivals, as well as its no-discount policy. Meanwhile, Snowpeak Apparel has started to expand overseas, with second-phase shipments to Taiwan following initial orders delivered in May plus market expansion into China and Hong Kong expected to gradually contribute to earnings from 4Q23. Initial apparel exports will be booked through the licensor Snow Peak Japan, and the opening of Snowpeak Apparel stores through the partner company in China is expected upon confirmation of market response. Visible growth in exports from 2024 should drive operating leverage going forward.
Earnings expectations on the rise for small/mid-cap top pick
In our view, Gamsung Corp is set for another re-rating of shares on rising expectations for domestic earnings in 2H23 and overseas growth in 2024. While domestic apparel companies continue to trade at a PER of 6-8x on average, F&F's PER reached mid-10x levels in 2019-2022 on strong overseas sales expansion. Expecting market cap to reach KRW800bn levels by 2024 given the upbeat outlook for overseas growth, we continue to recommend Gamsung Corp as our small/mid-cap top pick in the apparel sector.