Net Subscriber growth Slowdown Likely to Continue
The author is an analyst of NH Investment & Securities. He can be reached at kpark37@nhqv.com. -- ED.
Despite delivering slightly-higher-than consensus 1Q20 results, S-1 Corp. will inevitably continue to face a net subscriber growth slowdown in 1H20. However, led by: 1) stable growth at its product sales business, backed by a healthy order backlog; and 2) steadily expanding non-captive order volume at its building management business, expectations towards mid/long-term earnings growth remain valid.
Covid-19 impact to be offset partially by product sales and building management domains
Despite Covid-19, we believe that S-1 Corp’s product sales business will show favorable revenue growth this year (2020E sales of W327.0bn (+6.2% y-y), backed by: 1) likely solid capex investment at Samsung Group affiliates; 2) a healthy order backlog; and 3) rising CLES installation. Moving forward, S-1 Corp’s non-captive volume should continue to widen, led by active stake investment in REITs in line with the expansion of the consigned-management REITs market at the company’s building management business (2020E sales of W585.7bn (+4.4% y-y)).
Given the Covid-19 crisis, S-1 Corp will inevitably continue to face a net subscriber growth slowdown in 1H20. However, a rapid growth recovery should kick off once the pandemic subsides. S-1 Corp’s ongoing efforts to sign MOU contracts with a variety of firms are to translate into additional subscriber growth. Accordingly, we project 2020 overall consolidated sales of W2,234.9bn (+3.9% y-y) and OP of W207.1bn (OPM of 9.3%). And, possessing net cash of around W430bn, S-1 Corp appears free from financial risks. Given these positives, we adhere to a Buy rating and a TP of W98,000.
1Q20 review: Earnings top consensus
S-1 Corp announced consolidated 1Q20 sales of W533.7bn (+8.8% y-y) and OP of W47.9 (+4.1% y-y), with both figures coming in slightly above consensus.
The company’s alarm security business posted 1Q20 sales of W268.1bn (+2.9% y-y: 1Q20E total number of subscribers: 807,903 (+0.8% q-q)), with its pace of net subscriber growth slowing amid the Covid-19 crisis. Despite both delays in security installation plans at some overseas projects and low seasonality (1Q), S-1 Corp’s product sales business saw 1Q20 sales of W68.2bn (+16.7% y-y), backed by robust sales of the firm’s system integration offerings and other products (including CLES). The building management arm recorded 1Q20 sales of W139.4bn (+12.0% y-y), helped by an overall expansion in office floor area in Korea.