The author is an analyst at NH Investment & Securities. She can be contacted at [email protected] — Ed.
Handsome is a leading domestic high-end fashion brand. It strengthened its fundamentals both through a no-sell pricing policy and through proprietary distribution channels for The Handsome House and The Handsome.com. Following visible earnings growth for the company’s beauty category products, share price revaluation is in the cards.
2022 will be the year of change
We are running a hedge on Handsome at Buy, with a TP of 46,000W. Our TP is derived by applying the 9x average P/E for domestic fashion brands to our 2022E NP estimate. With Handsome’s stock price of W34,950 (as of March 24) equivalent to a 2022E P/E of 7x, our TP offers a 32% upside.
As fashion represents 99% of Handsome’s existing portfolio, the company needs a breakthrough in the domestic apparel market. We expect 2022 to be a year of change for the company, given: 1) the strengthening of its online business to meet the needs of MZ generations; 2) visible result of concept stores in large cities; and 3) its plans to focus on expanding the beauty category.
Directly Managed Retail Channels to Report Strong Sales
For 2022, we forecast consolidated revenue of W1,472.9 billion (+6% yy) and revenue of W166.9 billion (+10% yy). Online sales are expected to reach W309 billion (+7% year-on-year), accounting for approximately 21% of total sales. As for EQL, although its transaction volume was only W10 billion last year, Handsome plans to develop EQL as a fashion curation platform for MZ generations. This year, the trading volume at EQL is expected to be around W35 billion.
Handsome’s own offline retail channel, The Handsome House, will likely continue to prove its worth. To date, Handsome operates The Handsome House stores in Gwangju, Busan and Jeju and its high-end outlet Handsome House F/X (Fashion Express) in Cheongju. Unlike department stores, its directly managed offline stores allow the company to save costs and deploy more effective marketing activities. We expect their average monthly sales to reach around 800 million W.
Starting this year, Handsome’s beauty category is expected to grow faster. After launching its Oera cosmetics brand in August 2021, the company plans to open Liquides Perfume Bar, a premium perfumery, in 1H22. Noting that fragrances are particularly popular among MZ generations, we believe Handsome’s recently launched cosmetics brand, including its high-margin fragrances, will drive future earnings growth. If there is visible growth in earnings from the company’s beauty category products, a reassessment of the stock price should be considered