Future to Depend on Subsidiaries
The author is an analyst of NH Investment & Securities. He can be reached at jooyh@nhqv.com. -- Ed.
Slowing earnings momentum due to: 1) high-base effect; and 2) a rising cost-to-sales ratio at Hyundai L&C looks discouraging for HHS. However, believing that its shares are at a deep bottom (trading at a 2021E P/E of 6.6x), we recommend a dip-buying strategy.
Present Buy rating and TP of W93,000
Initiating coverage on Hyundai Home Shopping (HHS), we present a Buy rating and TP of W93,000. Our TP is derived by applying a target P/E of 9.0x to 12-month forward NP. Our target P/E multiple of 9.0x is the average figure over the past three years, and we believe that such is appropriate given that HHS’s business model remains unchanged. While home shopping business has been losing appeal in the retail sector, we offer a Buy rating on the firm, noting that its valuations look to be rock bottom (2021E P/E of 6.6x). Our TP offers 26% upside from the current share price (W74,000, as of Sep 10).
Future to depend on subsidiaries
We note that a big question mark lingers regarding the mid/long-term growth potential of the home shopping business. And, such market concerns have been the main factor weighing upon home shopping shares despite a sharp rise in GMS amidst soaring demand for cooking at home in the Covid-19 era.
Accordingly, we believe that going forward HHS’s share price direction will depend on the performances of its subsidiaries, rather than short-term earnings at the home shopping business. HHS has been expanding its business scope to include construction materials (Hyundai L&C) and rentals(Hyundai Rentalcare). While Hyundai L&C (construction materials arm)has been posting stable annual OP of W30~40bn, the rental business has yet to reach BEP.
As of 2Q21, cumulative subscriber accounts at Hyundai Rentalcare stood at 396,000, but operating losses amounted toW1.3bn. We expect Hyundai Rentalcare to reach BEP at a cumulative account total of 430,000, a target that is likely to be achieved around 3Q22. We believe that market sentiment towards HHS will begin changing when Hyundai Rentalcare makes a successful turnaround next year.