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Youngone Holdings-1Q14 review: Bright outlook despite difficult conditions

May 16, 2014 08:51|May 16, 2014 08:51
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▶ 1Q14 consolidated sales grew 22% YoY to W293.7bn and OP gained 35% YoY to W44.3bn. Youngone, a subsidiary (50.2% owned by Youngone Holdings) and an apparel OEM, generated OP of W25.5bn, up 18% YoY. Youngone Outdoor,
another subsidiary (59% stake) and a domestic outdoor retailer, recorded OP of W16.8bn, up 45% YoY. USD-denominated sales at Youngone grew 33% YoY on recovering demand and capacity expansion.

▶ Youngone should begin generating gains from its two year-old investments. Specifically, increased investments in capacity and workforce have begun to bolster earnings. And, 2Q14 USD-denominated sales should grow more than 15%, on: 1) high
order growth from new buyers in Europe, and 2) rebounding orders from US buyers whose earnings turn around. After being dragged down by slow sales, production difficulties and capex and workforce expansion costs, margins should climb on a
sales recovery and productivity improvements.

▶ VFC and North Face results were solid. Global North Face sales have grown at a double-digit pace since 2H13 on US and Asia growth. This is directly helping lift orders at Youngone, and the North Face brand value should be reinforced domestically,
offsetting increasing competition.

▶ We maintain BUY with a TP of W86,000 (2014F PE of 10x). Current market cap only reflects the stake value of Youngone, and fails to reflect Youngone Outdoor, growth potential and the 15% treasury stake.
*Source: Korea Investment & Securities Co.