Hanwha Investment & Securities said on the 18th that Kolon is excessively undervalued at the current market capitalization level, noting there are many points of interest such as strong results at Kolon Sports China and a rise in the equity value of Kolon Industries. It kept its investment opinion at "Buy" and raised the target price to 100,000 won from 90,000 won. Kolon closed the previous trading day at 64,700 won.
Kolon disclosed on the 15th that, on a consolidation basis for the first quarter of this year, it posted revenue of 1.5188 trillion won, operating profit of 98.8 billion won, and a net loss of 44.7 billion won. Compared with a year earlier, revenue rose 7.7% and operating profit jumped 158.3%. However, the net loss widened by 14.9 billion won, keeping the company in the red.
The improvement in profitability on a consolidation basis was due to operating profit in the construction business (Kolon Global) and distribution business (Kolon Mobility Group) growing 100% and 71%, respectively, from a year earlier. Kolon Sports China recorded revenue of 362.8 billion won and net profit of 99.9 billion won. Those figures were up 66% and 101%, respectively, from a year earlier.
Lee Jin-hyeop, an analyst at Hanwha Investment & Securities, said, "With the brand maintaining solid strength in China and the Chinese consumer market recently recovering, it appears to be continuing its high-growth trend."
Hanwha Investment & Securities projected Kolon Sports China's revenue this year at 1.4724 trillion won and net profit at 335.2 billion won. Revenue would be up 61% and net profit 98% from a year earlier. Those represent upward revisions of 9% and 11%, respectively, from the previous outlook. The analyst noted, "This reflects signs of recent improvement in Chinese consumption."
On top of that, an analysis suggests there are multiple factors that could drive Kolon's earnings improvement.
The analyst said, "As Kolon TissueGene's share price volatility has increased ahead of phase 3 clinical trials in July, the company's share price volatility is also expanding in line with TissueGene's moves," adding, "In addition, there are many points of interest, including strong results at Kolon Sports China, a rise in the equity value of Kolon Industries, and the hidden value of Kolon Spaceworks."
Hanwha Investment & Securities also said that, in conducting Kolon's valuation, it excluded the value of TissueGene and conservatively calculated net asset value (NAV) by applying a 50% discount to Kolon Sports China's value. The analyst added, "The current market capitalization level of 800 billion won is excessively undervalued."