Mainstay Businesses Report Solid Sales

The authors are analysts of Shinhan Investment Corp. They can be reached at kimkyuri@shinhan.com and changmin.yoon86@shinhan.com, respectively. -- Ed. 

 

1Q20 OP up 38% YoY to KRW2.3bn

Webcash posted sales of KRW14.1bn (-7% YoY) for 1Q20. Sales declined due to unprofitable SI (system integration) and other businesses that are under restructuring. Mainstay businesses reported solid sales: In-house Bank KRW3.5bn (+44% YoY), Branch KRW3.4bn (+20% YoY), and Gyeongrinara KRW1.6bn (+202% YoY).

Operating profit met the market consensus at KRW2.3bn (+38% YoY). Operating profit margin improved 5%p YoY to 16% backed by: 1) restructuring of SI and other businesses; and 2) leverage effect from growth of mainstay businesses.

Stability of In-house Bank and Branch operations, growth potential of Gyeongrinara

We forecast full-year sales of In-house Bank, which provides solutions tailored to public agencies and large enterprises, at KRW19bn (+42%YoY). The number of clients is estimated to increase 15% YoY to 610. The partnership with SAP should add 80-100 new clients annually for the next three years. Sales of Branch, which caters to large enterprises and SMEs, are projected at KRW16.9bn (+19%YoY) with the client count reaching 7,000 (+13% YoY).

Gyeongrinara, the upgraded SERP system for SMEs, should generate sales of KRW8.5bn (+144% YoY) in 2020. New client addition is estimated to top 10,000 as in 2019. Its sales share should continue to expand to 12% (+6%p YoY). Gyeongrinara is expected to drive company-wide top-line growth.

2020F OP of KRW13.2bn (+42% YoY); share valuations at 2020F PER of 35x

For 2020, we forecast Webcash to post sales of KRW70.4bn (+15% YoY) and operating profit of KRW13.2bn (+42% YoY). The share price is on a rebound after hitting bottom at KRW30,400 on March 19. Foreign ownership rose steadily over the past year, now standing at 10.3%. The current share price is equivalent to 2020F PER of 35x. Investment points are: 1) stability of In-house Bank and Branch operations (2020F combined sales growth of 21% YoY); and 2) fast-paced sales growth of Gyeongrinara (KRW8.5bn in 2020F→KRW15.6bn in 2021F).

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