Top-line growth Expected to Continue in 2021
The author is an analyst of NH Investment & Securities. He can be reached at minjae.lee@nhqv.com. -- Ed.
Hanssem’s 1Q21 earnings should meet consensus thanks to top-line growth at the RH and KB divisions, and online sales expansion due to Covid-19. We believe that the firm boasts valuation appeal, trading at a 2021E P/E of 17x (excluding treasury stocks).
Growth to continue in 1Q21
We maintain a Buy rating on Hanssem and raise our TP to W140,000 (from W134,000) to reflect a W20.0bn q-q decline in net debt and a 3% q-q hike in our EBITDA estimate. Top-line growth is expected to continue in 2021 thanks to the firm’s Rehaus (RH) and KitchenBach (KB) expansion strategies, and earnings improvement should be further buoyed by a reduction in losses at the company’s China subsidiary.
We forecast 1Q21 consolidated sales of W526.1bn (+7% y-y) and OP of W25.8bn (+50% y-y), in line with consensus. By major division, sales are predicted to reach W235.2bn (+34% y-y) at the RH division and W58.0bn (+10% y-y) at the online interior furniture division. Top-line growth should continue despite holidays in January and February and the winter low season. Meanwhile, losses at the China subsidiary should decrease to less than W3.0bn in 2021.
Center of gravity rapidly shifting to RH division
The RH and KB divisions should continue to grow in 2021 thanks to increasing demand for remodeling, led by aggressive offline store expansion and marketing manpower expansion strategies. Of note, the number of Rehaus agencies is planned to grow from 500 at end-2020 to more than 550 in 2021.
In addition, the company’s strategy of expanding direct construction manpower, which has been underway since last year, should boost package sales and increase the scope of direct construction. For reference, when selling RH packages in the past, only Hanssem products were directly constructed, but from 4Q19, the firm started offering direct construction for other work, including demolition, woodwork, and wallpapering. RH and KB sales are estimated at W992.9bn (+25% y-y) for 2021. Meanwhile, at the furniture division, sales growth at directly-run stores and online channels should continue, but sales at the B2B division are likely to decrease owing to a falling number of apartments.