Domestic street fashion trends still valid
The author is an analyst of NH Investment & Securities. He can be reached at jack.baek@nhqv.com. -- Ed.
SJ Group enjoys domestic licenses for both street and luxury brands that are in sync with current market trends. Even given the economic aftermath of the Covid-19 outbreak, SJ Group’s flagship brands, Kangol and Helen Kaminski, are expected to remain competitive. While the Covid-19 crisis is to dampen offline sales in 1H20, online sales should increase.
Domestic street fashion trends still valid
Recently, luxury and street brands are dominating Korea’s fashion market. SJ Group possesses both Helen Kaminski (luxury brand) and Kangol (street brand) under its umbrella. Helen Kaminski targets women in their 20s~40s. Kangol’s main target demographic is consumers aged 20~30, but it has recently diversified product categories via the launch of its Kangol Kids line.
Despite the impact of the Covid-19 crisis, we believe that Kangol’s 1Q20 earnings remained on a par with those in 1Q19. Helped by likely higher online sales, y-y drop in 2Q19 sales is to be limited. But, Helen Kaminsky sales (which usually enjoy peak seasonality in 2Q) will likely decrease y-y this quarter.
MAU at representative street fashion platform MUSINSA is expanding independently of Covid-19 effects, suggesting that the street fashion trend is to sustain. Having stood at only 19% in 2019, SJ Group’s online sales portion is estimated to have grown to 28% in 1Q20.
1H20 earnings to be sluggish, but remain in the black
Despite the Covid-19 crisis, we expect SJ Group to keep operating in the black. Over March~June, BEP is expected to be achieved on a monthly basis, and OP should reach W7.3bn in 1H20 and W9.8bn in 2H20, assuming normalization of consumption in 2H20. For full-year 2020, we forecast sales of W118.1bn (+7.9% y-y) and OP of W17.1bn (+4.5% y-y).
Although it is inevitable (due to the pandemic) that the firm’s near-term earnings will be lower than consensus, we point out that SJ Group’s shares are currently trading at 2020 P/E of only 9.9x, even when adjusting earnings estimates due to Covid-19. Considering the firm’s new product lines, extended sales channels, and expansion potential in China, we view the shares as a highly attractive investment vehicle.