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The author is an analyst of KB Securities. He can be reached at moonjoon.chang@kbfg.com. — Ed.

Maintain BUY; lower target price to KRW68,500   

We maintain BUY but lower our TP by 12.7% to KRW68,500 on Hanssem. Our DCF-based TP reflects (1) a decline in WACC (8.74%→8.61%) resulting from changes to various assumptions and (2) a downward revision to 2023E-30E OP averaging 28.4%. 

Conditions to improve with eased real estate regulations; expect stock to improve faster than fundamentals       

In 2022, earnings and stock performance were hit hard amid sluggish apartment transactions and rising raw material prices. We see earnings turning around in 2H23, so we recommend accumulating shares before signs of improvement are confirmed. The housing transaction market should be the first to see the effects of the government’s easing of real estate regulations. Given Hanssem’s unrivaled brand power and market share in the remodeling/home interior markets, the stock price should improve faster than fundamentals if signs of an industry turnaround materialize (e.g., recovery in apartment transaction volume). 

4Q22 preview: Still in the red

We expect 4Q22 results to remain sluggish, meeting a lowered market consensus with consolidated revenue of KRW503.0bn (-12.3% YoY, +5.4% QoQ) and OP of -KRW14.0bn (remain in red YoY/QoQ). Market conditions are unfavorable (i.e., drop in housing transaction volume), COGS should maintain its upward trajectory and the fixed cost burden should increase amid a decrease in revenue. 

Expect turn to black in 2H23 

We forecast 2023 consolidated revenue at KRW2.12tn (+5.4% YoY) and OP at KRW20.3bn (turn to black YoY). OP should remain in red until 1H23 but begin to turn around in 2H23 on (1) profit margin improvement upon declining raw material prices and (2) full-fledged revenue growth amid rebounding housing transaction volume




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