Solid Domestic Revenue
The author is an analyst of KB Securities. She can be reached at shinay.park@kbfg.com. -- Ed.
Maintain BUY, target price of KRW100,000; expect market outperformance to continue
We maintain BUY and TP of KRW100,000 for Coway as changes to revenue/OP forecast were marginal (less than 3%). The stock’s appeal stands out more than ever, with stable earnings and valuation (10.0x 12m fwd P/E) amid stock market volatility having strengthened substantially. The phasing-out of social distancing measures should give way to better door-to-door operating conditions. The stock’s market outperformance should continue.
2022 forecast: Ratio of overseas subsidiaries to consolidated revenue to reach 36%; Malaysia/U.S. revenue to advance 18%/14%
We forecast 2022 revenue/OP at KRW4.01tn (+9% YoY)/KRW699.8bn (+9% YoY). Overseas subsidiaries’ shares of consolidated revenue/OP to grow to 36%/32%. Malaysia/U.S. revenue is likely to advance 18%/20% (based on same accounting standards for 2021 and 2022). Hindered by an unfavorable comparison base, top-line growth should slow slightly from past 30-40% levels.
1Q22 earnings in line with market consensus; solid domestic revenue but overseas earnings slightly miss expectations
Coway reported 1Q22 consolidated revenue/OP of KRW928.0bn (+6% YoY)/KRW172.7bn (+1% YoY), with revenue falling 5% short of the market consensus and OP in line.
Domestic (standalone) revenue/OP came in at KRW710.1bn (+5% YoY)/KRW143.1bn (+28% YoY):
(1) No. of new rental sales rose 10% YoY with the launch of novel products (e.g., Noble series) and stronger marketing.
(2) Monthly avg. churn stayed low at less than 1%.
(3) No. of rental accounts saw a 65,000 net increase.
(4) OPM improved 3.6pp YoY to 20.2% because of delayed booking for marketing costs and a reversal of impairment losses.
Malaysia revenue increased 9% while OP fell 4% on changes in accounting standards (revenue/OP up 16%/26% based on same accounting standards). Revenue growth slowed on an unfavorable comparison base (e.g., new water purifier launched in March 2021).
U.S. revenue increased 7% (slower growth in store sales) but OP tumbled 58% YoY to KRW2.4bn (5.2% OPM) on an unusually high margin in 1Q21 and higher logistics costs & tariffs.