Shinhan Investment Corp. announced on November 5 that it has lowered its target price for Hugel from 300,000 won to 280,000 won, reflecting the strengthening of the won and increased costs associated with establishing a local organization in the United States. However, the firm analyzed that the third-quarter results have reached a low point due to a revenue gap from the transition to a contract sales organization (CSO) and increased selling and administrative expenses.
Kim Ji-young, a researcher at Shinhan Investment Corp., stated, "The third-quarter results have formed a low point due to the revenue gap from the CSO transition and increased selling and administrative expenses. However, strong demand in key markets such as China and Brazil, along with the normalization of U.S. revenue recognition in the fourth quarter and an increase in average selling prices (ASP), are expected to highlight overall growth."
The preliminary revenue for the third quarter was 97.5 billion won, a decrease of 7.9% compared to the same period last year, while operating profit fell 61.8% to 18.1 billion won, falling short of market expectations by 35.2%. Kim explained that the revenue deduction from U.S. sales was due to shipment restrictions ahead of the CSO transition to Benev and increased costs from local organization establishment and medical marketing.
Demand in major markets outside the U.S. remained robust. Kim noted, "Brazil's quarterly revenue has surpassed 10 billion won for the first time, and China is estimated to have recorded 12.3 billion won in revenue in the third quarter, even after large shipments in the second quarter. The recovery of domestic toxins and fillers, along with the expansion of cosmetic channels (Olive Young, Sephora), is expected to continue driving high growth."
The target price adjustment reflects the downward revision of performance estimates due to the strong won and increased costs for establishing a local organization in the U.S. Kim stated, "We are lowering our operating profit estimates for this year and next year by 4.8% and 10.3%, respectively, and adjusting the applicable price-to-earnings ratio (PER) to 18.5 times, a 10% discount from the previous estimate, considering the delayed profitability improvement from the transition of the U.S. sales system."
He added, "At the current stock price, it is time to focus on top-line growth rather than short-term profitability deterioration. The speed at which future overall growth absorbs upfront investment costs and leads to profitability improvement will be crucial."
* This article has been translated by AI.
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