Mattress Sales to Level up
The author is an analyst of NH Investment & Securities. She can be reached at jy.lee@nhqv.com. -- Ed.
Zinus recorded strong 1Q21 earnings, surpassing expectations on a resolution to US logistics disruptions and growth of the global online furniture market. Moving ahead, the relatively low anti-dumping tariff rate faced by the company in Indonesia should boost its price competitiveness, resulting in differentiated earnings performance.
Mattress sales to level up
We maintain a Buy rating and TP of W115,000 on Zinus.
In 1H21, ocean freight rates remain high, and costs for raw materials (eg, MDI and TDI) still appear burdensome. In addition, we advise monitoring the initial costs related to Zinus’s operation of a US plant from 2Q21.
However, from 2H21, ocean freight rates should stabilize and raw material costs should enter a modest downtrend on plant restarts. Above all, we note that the anti-dumping tariff rate for Zinus’s mattresses in Indonesia, where the company’s factory is located, is very low at 2.22%—a figure that should stand out versus the average of 158% faced by operators in other countries. In addition, the firm’s mattress sales look set to level up y-y in the US next year, which should serve as further share price momentum.
1Q21 review: Performing at normal levels
Zinus announced consolidated 1Q21sales of W274.3bn (+49% y-y) and OP of W25.1bn (+8% y-y), with both sales and OP exceeding the market projections.
In 1Q21, sales growth came to 44% y-y in the US and 123% y-y in other regions, helped by: 1) the reflection of deferred sales on the resolution of logistics disruptions at end-2020; 2) rising global online demand for furniture; and 3) explosive sales growth in Australia and Korea. By item, sales growth (y-y) came to 59% for mattresses, 33% for bedroom furniture, and 40% for other furniture. In particular, the uptick in mattress sales proved remarkable, as Indonesia, where the company’s production plant is located, enjoys a low anti-dumping tariff rate of only 2.22% (vs average of 158% for the 7 countries facing anti-dumping-related complaints). In 1Q21, GPM fell 1.8%p y-y, affected by high ocean freight rates and rising costs for raw materials (eg, MDI and TDI), and OPM slid by 3.5%p y-y on the decline in GPM and the reflection in SG&A expense of labor costs for the US factory scheduled to operate from 2Q21.