The author is an analyst of NH Investment & Securities. She can be reached at [email protected] — Ed.
Sector earnings should continue to improve in 2H21 in response to both low base effect and deferred demand. With our key investment points including the continued strength of sports/outdoor category and greater online sales, we advise focusing on FILA Holdings, Shinsegae International, and Zinus.
Consumer goods segments (fashion and miscellaneous goods) to see strongest low-base effects in 2H21
We maintain a Positive stance towards the apparel sector for 2H21. With apparel being the consumer product segment that saw the largest decline in sales in 2H20, the sector is well situated to see earnings growth momentum in 2H21 in response to both low-base effect and deferred demand. Particularly in the case of clothing, even though seasonal changes are to help push up consumption in 1H21, the earnings growth should not be viewed as being a one-off event.
2H21 strategy: Focus on continued strength of sports/outdoor category, revival of online sales
Recently, the sports/outdoors category is chalking up the highest growth rate in terms of sales among clothing categories, surpassing the overseas luxury category. This trend is expected to sustain in 2H21, especially for sports/outdoor activities carrying high initial investment costs (such as golf and camping), as the number of active participants newly introduced to these activities amid the Covid-19 crisis is unlikely to decrease significantly after the pandemic fades.
We expect consumption to focus on online channels again from 2H21, believing that the strength of offline channels in 1H21 will prove to be only a temporary phenomenon. We also note that the online fashion industry is being reorganized into a squadron of large players, with Kakao having recently acquired ZigZag and SSG.COM having acquired WConcept. From 2H21, Coupang is also expected to invest in the expansion of its fashion category, leading to major innovative changes within the industry.
Pay attention to FILA Holdings, Shinsegae International, and Zinus
Earnings at FILA Holdings’ subsidiary Acushnet have been improving significantly thanks to an increase in the global golfing population. FILA’s main business has been rebranding through the launch of a global performance lineup, including Neuron and Ciclista. Thus, currently trading at a 2021E P/E of only 12x, the firm’s shares appear undervalued. Shinsegae International’s earnings remain strong on high sales growth for overseas brands—related sales are expected to start in earnest from 2H21, with the opening of a specialized mall on NAVER Shopping as well as S.I. Village, the firm’s own mall. Meanwhile, Zinus’s share price is primed to increase significantly following a favorable anti-dumping tariff case decision. Also, a rise in product prices and the expansion of its product categories to include sofas should serve as share price catalysts.