Most Businesses Showing Profitability Improvement
The author is an analyst of NH Investment & Securities. He can be reached at jack.baek@nhqv.com. -- Ed.
KoreaCenter’s 2Q20 results far exceeded both our estimates and consensus, backed by outstanding profitability improvement at the global sourcing business and domestic e-commerce market growth. With the profitability of most of its subsidiaries improving and the e-commerce market expected to continue growing in 2H20, KoreaCenter’s earnings should only rise further.
Enjoying friendly business environment, with most businesses showing profitability improvement
KoreaCenter recorded a 2Q20 earnings surprise, backed by sales of W77.2bn (+25.9% y-y) and stronger-than-anticipated OP of W7.1bn (+203.3% y-y). We primarily attribute the strong earnings to a favorable business environment for the firm’s main downstream industries.
With domestic e-commerce market growth accelerating since the outbreak of Covid-19, subscriber numbers and value-added service sales for KoreaCenter’s shopping mall solutions (MakeShop) business have increased. At its global sourcing business, the range of products handled has expanded, volume discounts have picked up on increased cargo volume, and sales for high-margin health functional foods have strengthened. Against this backdrop, the firm’s 2Q20 OPM widened by 5.5%p q-q to 9.2%.
We advise paying attention to margin improvement at subsidiaries Playauto (including Linkprice) and Summerce Platform (Enuri.com). Enjoying healthy operating leverage, Playauto boasts a stable subscription-based business model. Meanwhile, Summerce Platform is seeing rapid growth in data sales, a factor which should boost margins thanks to robust operating leverage effects.
Upwardly adjust 2020E OP
Revising up our OP estimates, we now expect 2020 sales of W322.1bn (+28.1% y-y) and OP of W23.9bn (+122.1% y-y). The upward adjustment reflects improvements in profitability at the company’s major businesses amid Covid-19, as well as utilization rate improvement at the global sourcing business and volume discount expansion.
From 2022, three of KoreaCenter’s subsidiaries, Makeshop Japan (GMO Makeshop), Summerce Platform, and Podbbang, are expected to be listed sequentially. We see upside potential in KoreaCenter’s shares when performing an SOTP valuation that combines the values of its invested assets (including the aforementioned companies) and subsidiaries such as Playauto with KoreaCenter’s operating value. Also worth noting, trading at a 12-month forward P/E 27.0x, KoreaCenter’s shares boast relatively attractive valuations versus those of peers.