Home Appliance Consumption to Rise
The author is an analyst of NH Investment & Securities. She can be reached at jy.lee@nhqv.com. -- Ed.
Lotte Himart’s 1Q20 results exceeded consensus thanks to reduced promotion costs. As: 1) the government will inject W14tn in emergency relief funds; and 2) W34tn worth of funds that are usually spent overseas will likely be spent in the domestic market this year due to Covid-19, surplus funds at middle-income-and-above households are expected to grow. We recommend keeping a close eye on Lotte Himart.
Home appliance consumption to rise on jump in surplus funds
We hike 2020E and 2021F EPS for Lotte Himart by 15% and 6%, respectively, to reflect growing expectations for home appliance sales on an increase in domestic surplus funds, and in turn, we raise our TP from W30,000 to W35,000.
The government plans to distribute a W14tn emergency relief fund among all Korean households. Not only that, W34tn that is usually spent overseas will likely be spent in the domestic market this year due to Covid-19. As the emergency relief funds must be exhausted by Aug 31, and as overseas travel usually concentrates in the summer, middle-income-and-above households are expected to ramp up their domestic summer spending. Recently, home appliance demand has been on an uptrend due to the greater amount of time spent at home. Also, home appliance sales should be bolstered by a government rebate program for buyers of energy-efficient home appliances.
As of 2Q20, the company’s sales growth is down slightly y-y. However, sales of white goods are rebounding rapidly and air conditioner sales could also recover.
1Q20 review: Earnings beat consensus thanks to reduced promotion expenses
Lotte Himart booked non-consolidated sales of W925.3bn (-11% y-y) and OP of W19.5bn (-20% y-y), with OP exceeding consensus by 22%.
Owing to the Covid-19 outbreak, sales in most categories (except TVs) were sluggish. In particular, air purifier sales decreased due to air quality improvement, and PC sales fell on supply disruptions in China. By category, sales growth for A/V, white goods, telecom devices, and home appliances stood at +7% y-y, +13% y-y, -7% y-y, and -18% y-y, respectively. However, despite sluggish sales, GPM rose 1.1%p y-y thanks to reduced promotion expenses.