Hanwoori Online Platform Launch Delayed
The author is an analyst of NH Investment & Securities. She can be reached at jiyoony@nhqv.com. -- Ed.
Digital Daesung’s 4Q21 earnings will likely come in short of consensus, but noting 4Q off-seasonality, we advise investors to focus more upon upcoming 2022 factors. The accumulated transaction value for 2023 Daesung Allpass is currently growing at 25% y-y and cruising smoothly, but the launch of the Hanwoori online reading platform for new members has been pushed back.
Daesung Allpass smooth sailing vs Hanwoori online platform launch delay
Although adhering to a Buy rating, we lower our TP on Digital Daesung by 8% from W13,000 to W12,000, reflecting a 11% cut to 2022F EPS due to a delay in the launch of the Hanwoori online reading platform.
The accumulated transaction value for 2023 Daesung Allpass is estimated to have expanded 25% y-y thus far since its launch. The high school division’s online sales should climb 31% y-y this year amid a favorable external environment, including the rising importance of the KSAT (a greater portion of students are to be admitted to post-secondary schools based upon KSAT scores alone), weakening competition in KSAT online education market, recruitment of top-tier Korean language educators, and fee hikes.
In 2022, elementary and secondary school business sales growth is projected to expand 14% y-y. Of note, Hanwoori currently has 125,000 subscribers and is conducting stable sales activities. But, as the launch time for new members, not existing members, has been delayed from the previously expected 1Q22, 2022 earnings estimates for the elementary & middle school business inevitably need to be trimmed down.
4Q21 preview: Earnings conditioned by low seasonality
We forecast 4Q21 consolidated sales of W49.5bn (+19% y-y) and an operating loss of W0.5bn (RR y-y), with both figures disappointing consensus. Earnings are to decline q-q due to expense hikes such as higher labor costs (including the booking of employee incentives) and advertising/promotional costs.
We believe that high school division sales reached W36.6bn (+18% y-y). As 4Q is traditionally an off-season for the education industry, and as Gangnam Daesung Dormitory Academy was closed from mid-November to December in the wake of the university entrance exam, the high school division’s contribution to earnings should prove lower than in 2Q21~3Q21. Yigam, which sells Korean language textbooks/mock exams, faced high-base burden due to the postponement of the 2020 SAT (Dec 3 in 2020 vs Nov 18 in 2021). Elementary & middle school business sales should come in at around W12.9bn (+39% y-y). We estimate OPM of 14%, helped by synergies and better operational efficiency stemming from a merger in Feb 2021.