Handsome Co Ltd Offline growth encouraging
■ Buoyed by strong sales growth from department stores, we forecast Handsome’s offline sales to climb 9.4% in FY21F (vs. -12% in FY20).
■ An increase in the proportion of online sales should improve the company’s overall OP margin in FY21F/FY22F (+9.4%/+9.9% vs. +8.5% in FY20).
■ Reiterate Add; TP raised to W50,000, based on Handsome’s five-year historical P/E of 11.7x. This note marks the transfer of coverage to Jiwon Lee. Stellar offline sales growth According to the Ministry of Industry, Trade and Energy, Korea’s offline department sales gained 63% yoy in Mar 21, a record high following the 40% in Feb 21.
Buoyed by strong department sales growth, women’s/men’s apparel sales also increased 18%/21% yoy in Feb 21 and we forecast around 30% sales expansion in Mar 21 (data to be released by the end of Apr 21).
Based on robust apparel sales, which we believe will continue throughout the year in Korea, and its solid partnership with Hyundai Department Store (HDS, Add, TP: W110,000), we forecast Handsome’s offline sales to advance 9.4% in FY21F (vs. -12% in FY20). Margin boost from online sales
We expect Handsome’s online sales proportion to increase to 20%/23% in FY21F/FY22F from 18% in FY20, thanks to: 1) excellent customer loyalty on its exclusive online platform – http://www.theHandsome.com, 2) continued expansion into trendy online shopping malls (e.g. entered EQL in May 20), and 3) an active live commerce community on its mobile platforms. Currently, Handsome’s online OP contributes around 54% of total OP. We believe its online channel offers better margins than offline (e.g. low commission rates at theHandsome.com and HFashionMall) and forecast the company’s OP margin to be +9.4%/+9.9% in FY21F/FY22F (vs. +8.5% in FY20).
Cosmetics: A potential re-rating catalyst In May 20, Handsome entered the premium skincare product market by acquiring a 51% stake worth W10bn in Cleangen Cosmeceuticals, which develops functional cosmetics that have proven effective for skin whitening.
Handsome renamed the company ‘Handsome Life&’ and has completed trademark applications for ‘Calibrator’ and ‘OEra’, high-end luxury skincare products. We expect Handsome to utilise HDS’s existing DS/DF distribution channels to boost cosmetics sales. TP raised to W50,000 We raise our FY21F/22F EPS estimates by 7%/8% to reflect: 1) higher-than-expected offline sales growth in FY21F, driven by department store sales, and 2) an increase in contribution from online sales, which should boost Handsome’s OPM in FY21F/22F.
We reiterate our Add call and raise our TP to W50,000, based on a historical P/E of 11.7x. Potential re-rating catalysts could come from Handsome’s new cosmetics brand launch slated for Aug-Sep 21. A key downside risk is a sudden rise in Covid-19 cases in Korea
– By CIMB Bank Research