Home Remodeling Business Expanding
The author is an analyst of NH Investment & Securities. She can be reached at eunsang.lee@nhqv.com. -- Ed.
LX Hausys’s window sales should be positively impacted by the rise in housing starts since 2020, with a greater portion of high-margin products to push up overall profitability. Expansion of the firm’s home remodeling business should serve as mid/long-term growth momentum. Our TP equates to a 2023F P/E of 14x.
Three investment points: Top-line growth, margin improvement, and mid/long-term growth momentum
We initiate coverage on LX Hausys with a Buy rating and TP of W53,000. Our TP is derived by applying the firm’s 12-month forward EBITDA to a target multiple of 4.3x. Currently trading at a 2023F P/B of 0.5x, LX Hausys shares look undervalued.
Increased housing starts over 2020~2021 should bolster the company’s B2B window sales over 2022~2023. Going forward, housing starts are likely to remain solid on the government’s real estate supply expansion policy and the beginning of the third round of new town projects.
Moving ahead, margins at the firm should improve in line with a rising sales portion of high-margin products. In detail, following the completion of new phenolic (PF) board production capacity, LX Hausys is to generate additional OP of W12bn pa from the added facility. Sales of engineered stone should remain sound till 2023 given the uptick in housing starts in the US.
We expect mid/long-term growth at LX Hausys to be led by an expansion of its home remodeling business. In response to the rapidly-increasing domestic remodeling market, it has emphasized: 1) nurturing its in-house interior workforce; and 2) growing its exclusive remodeling agency network. Amid sustained growth in Korea’s home renovation market, we foresee that the market share of brand plays will continue to rise, eroding the share of non-brand firms.
Earnings to improve in 2023
LX Hausys’s 2023 OP should jump to W102.8bn (+125% y-y), backed by: 1) robust sales of window and engineered stone products; 2) additional production of PF board; and 3) a turn to profit at the automotive materials & components division. Since its split-off from LG Group, LX Hausys has focused on growing both its portion of high value-added products and its home remodeling business. Despite a lofty debt-to-equity ratio, related concerns should ease upon the completion of business restructuring and securing of earnings fundamentals.