To Secure a New Growth Engine
The author is an analyst of KB Securities. She can be reached at shinay.park@kbfg.com. -- Ed.
Acquisition aimed at securing new growth engine
— On Mar 22, HDS announced that it would acquire a 35.8% stake in furniture/mattress company Zinus for KRW894.7bn (KRW774.7bn in shares held by founder Lee Yun-jae, KRW120.0bn in new shares via private placement).
— HDS plans to use cash holdings and finance ~KRW600.0bn via loans. It holds cash assets of KRW720.0bn (as of end-2021; KRW46.6bn in cash, KRW10.1bn in short-term financial products, KRW663.3bn in beneficiary certificates/wrap accounts/deposits).
— Zinus EV is estimated at KRW2.5tn (114% premium to Mar 22 market cap. of KRW1.17tn).
— Lee Yun-jae should continue to participate in management after the equity selloff. With an approx. 7% stake, he will be the second-largest shareholder.
HDS set to diversify business portfolio, add to growth
— New business to overcome limitations faced by domestic department stores: The domestic market for department stores is mature, with limited room for store openings, thus strong growth is unlikely. In order to overcome this, HDS entered the DFS business in 2018. This latest acquisition should diversify the company’s business portfolio and add to growth.
— Zinus brand recognition to grow; distribution network to expand: For 2021, Zinus reported domestic revenue of only KRW31.0bn (3% of consolidated revenue). HDS plans to expand Zinus’ distribution network through its multiple stores and online malls (e.g., thehyundai.com). To boost Zinus brand recognition, it aims to set up experience centers at stores/outlets and create dedicated spaces online. Also, we see the company adding premium mattresses to its current low-/mid-priced offerings.
— Synergies with Hyundai affiliates to come: We anticipate synergies with Hyundai affiliates, including collaborations with Hyundai Home Shopping, Hyundai Rental Care, Hyundai Livart and Hyundai L&C.
— HDS guidance has Zinus 2025 revenue at KRW2.0tn (2021 revenue: KRW1.1tn).
Zinus: No. 1 in its category in terms of U.S. sales on Amazon
— Established in 1979, Zinus sells mattresses, bed frames, toppers and pillows. As the first company to employ mattress compression technology for box shipping, it is No. 1 in its category in terms of U.S. sales on Amazon, commanding ~30% of the U.S. online mattress market. The U.S. accounts for 88% of overall company revenue, followed by Canada (4%) and Korea (3%).
— Zinus reported 2021 revenue/OP of KRW1.12tn (+14% YoY)/KRW74.3bn (-14% YoY).
— In 2021, Zinus revenue growth slowed compared to 2019 (+13%) and 2020 (+21%). Global supply chain bottlenecks and an increase in sea freight rates delayed shipping. GPM deteriorated 4.3pp YoY, which we attribute to higher commodity prices, higher sea freight rates and anti-dumping tariffs on mattresses made in Indonesia.