APR Thriving in the U.S. and Europe, Yet Price Target Cut

[Financial News] Meritz Securities forecast that APR’s third-quarter revenue would more than double year on year, but cut its target price by 5.5%, from 550,000 won to 520,000 won. It said profitability could be lower than expected due to the stronger won and rising logistics costs in Europe. However, it maintained its “Buy” rating, saying overseas market growth remained solid.
Park Shin-ae, an analyst at Meritz Securities, said on the 13th, “Third-quarter revenue is expected to meet market expectations, but operating profit is forecast to fall 15% short. With the U.S. and Europe together accounting for nearly 70% of revenue, the negative impact of the won’s recent strength is unavoidable.”
It forecast consolidated third-quarter revenue of 777 billion won and operating profit of 167.8 billion won, up 101.3% and 78%, respectively, from a year earlier. The operating margin is expected to fall to 21.6%, down 2.8 percentage points from 24.4% a year earlier.
Overseas revenue growth is expected to continue. It estimated revenue growth by region at 124% in the U.S., 689% in Europe and 13% in Asia. It also forecast that the U.S. and Europe would account for 47.1% and 21.5% of revenue, respectively. By contrast, domestic revenue is expected to fall 33% year on year.
Exchange rates and rising costs were cited as the main reasons for the slowdown in profitability. The stronger won reduces the value of overseas revenue when converted into won, while the costs of air and inland transport to meet surging demand in Europe, as well as online sales commissions, have increased.
Park said, “In the early stages of entering Europe, responding promptly to surging demand is the priority, so costs are running higher than expected. We expect profitability in Europe to improve each year as operations become more efficient and offline sales account for a larger share.”
Accordingly, operating profit forecasts for this year and next year were also cut by 7.7% and 6.7%, respectively, to 709 billion won and 980.9 billion won. However, revenue is forecast to rise 100.2% year on year to 3.0582 trillion won this year, and increase 34.4% to 4.1094 trillion won next year.
Park said, “The slowdown in profitability is disappointing, but there has been no change in the company’s underlying competitiveness. I believe the recent share price correction has also largely reflected unfavorable exchange-rate movements.”
She added, “If solid revenue growth continues, the easing of the fixed-cost burden as revenue increases will begin to take full effect. We recommend buying ahead of the start of the fourth-quarter peak season.”
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