Demand for Bicycles Picking up Significantly
The author is an analyst of NH Investment & Securities. She can be reached at jy.lee@nhqv.com. -- Ed.
Affected by a shutdown of the Bangladesh plant and shipment delays, Youngone’s 2Q20 results fell short of the market’s expectations. However, as its orders are currently on the rise on a US dollar-basis and SCOTT is expected to show strong earnings moving ahead, we believe that Youngone deserves attention in light of its rock bottom valuations.
Look to increase in OEM orders and SCOTT’s bike sales
We maintain a Buy rating and TP of W40,000 on Youngone.
In 3Q20, Youngone’s OEM orders (US dollar basis) are estimated to be increasing slightly y-y. Shipments delayed from 2Q20 are now being shipped, and buyer inventories are being cleared out to some extent.
Looking at SCOTT, as European consumers are reluctant to use public transportation amid Covid-19, demand for bicycles is picking up significantly, a factor which should prove favorable for the firm. As the majority of store shutdowns have been lifted from May, the company’s 3Q20 earnings (April~June in Europe) should show significant improvement. Currently trading at a rock bottom 2020E P/E of 8.8x and 2021F P/E of 6.6x, Youngone looks to possess robust valuation merit.
▶ 2Q20 review: Not great, but in line with expectations
Youngone posted consolidated 2Q20 sales of W545.5bn (-19% y-y) and OP of W51.7bn (-43% y-y), slightly missing the market projections.
The OEM division recorded sales of W260.1bn (-34% y-y) and OP of W31.5bn (-55% y-y). On a US dollar basis, orders dropped 37% y-y. Amid the pandemic, the Bangladesh factory closed down in April, and reductions in brand client orders and shipment delays were experienced. OPM declined 5.8%p y-y, impacted by additional logistics and labor costs incurred amid a transfer in orders to Vietnam following the Bangladesh plant shutdown.
At the brand division, sales arrived at W285.5bn (+4% y-y) and OP at W20.2bn (+2% y-y). On a Swiss franc basis, SCOTT saw sales fall 5% y-y, as the majority of stores in Europe were shut down over March~April. However, alongside store reopenings from May, demand for bicycles has been picking up strongly on greater demand for socially-distanced mobility options.