With the construction slump dragging on, the two major furniture makers, HANSSEM and Hyundai LIVART, are posting weak results. But the industry's view of the two corporations differs. The mid- to long-term outlook is largely positive for Hyundai LIVART. By contrast, sentiment is predominantly negative for HANSSEM. Hyundai LIVART has steadily improved profitability, while HANSSEM appears unable to find a breakthrough due to financial burdens and the limits of its business diversification strategy.
According to the Financial Supervisory Service's electronic disclosure system on the 10th, HANSSEM posted cumulative first-half sales of 902.9 billion won and operating profit of 8.7 billion won, down 6.3% and 56.7%, respectively, from a year earlier. Hyundai LIVART also recorded sales of 847.6 billion won and operating profit of 14.6 billion won over the same period, down 15.4% and 2.5%, respectively. The core of furniture makers' B2B (business-to-business) sales is supplying built-in furniture for apartments through large construction companies, and results reflect the impact of fewer apartment builds and move-ins due to the prolonged construction downturn.
The industry believes both companies will see a rebound in results only when the construction cycle recovers. However, the outlook is not entirely negative for Hyundai LIVART. Choi Jong-gyeong, a researcher at Heungkuk Securities, said, "Hyundai LIVART saw declines in both sales and profit, but attention should be paid to efforts to improve profitability by part," adding, "In the built-in institutional sector, it is avoiding low-price competitive bidding, while expanding orders for premium items and improving internal processes to lower order costs."
In fact, Hyundai LIVART's gross margin has risen steadily: 14.2% in the first quarter of last year, 14.5% in the second, 15.9% in the third, 16.7% in the fourth, 17.4% in the first quarter of this year, and 17.9% in the second. Choi said, "Recovery in B2B furniture profitability, a higher share of B2C (business-to-consumer) furniture and interior institutional sectors, and other changes in business mix and profitability are progressing steadily, and those positive effects will materialize in earnest after the market improves."
By contrast, the outlook for HANSSEM is largely bleak. First, there is talk that the company's financial soundness has worsened due to excessive dividends after the buyout by private equity firm IMM PE. HANSSEM's dividend per share rose from 800 won in 2022 to 4,500 won in 2023 and 8,530 won last year. Industry watchers see HANSSEM as short on cash to use as a source for dividends. Kim Sun-mi, a researcher at Shinhan Investment & Securities, said, "Without further asset securitization, maintaining high dividends will be difficult." In fact, HANSSEM has not paid dividends so far this year.
HANSSEM sold its headquarters building in Sangam, Seoul, last year for 320 billion won. As a result, retained earnings amount to 595.2 billion won, but that is a sharp drop from 774.8 billion won at the end of 2021, when the private equity buyout occurred. After the Sangam headquarters sale, monthly rent of about 1.2 billion won is also expected to weigh on year-over-year operating profit improvement.
Furniture makers are focusing on B2C as a way to navigate the downturn, but the industry expects it will be hard for HANSSEM to achieve the explosive B2C growth it once did. HANSSEM grew on its past "Rehouse package" strategy, which solved full-home remodeling at once—from kitchens and bathrooms to flooring, wallpaper, lighting, and furniture. Recently, however, due to the economic slump, consumers have come to prefer smaller-scale remodels such as replacing kitchens or bathrooms or buying select furniture items. Kim Gi-ryong, a researcher at Mirae Asset Securities, said, "In the second half, HANSSEM's B2C institutional sector is expected to push a growth strategy using an expanded new product lineup and influencers," but added, "A B2C strategy centered on single items has limits."
With weak results, the share price is also falling. At the end of 2021, when the private equity buyout took place, HANSSEM's stock was around 100,000 won, but as of the 9th the closing price was 42,950 won. Its market capitalization stands at 1.011 trillion won. HANSSEM has not disclosed any plan to dispose of treasury shares, and some investors criticize the company for taking no notable shareholder-return steps to support the stock.
Shin Dong-hyeon, a researcher at Hyundai Motor Securities, said, "In the B2B institutional sector, sales continue to decline as presales and groundbreaking volumes fall, and while Rehouse institutional sector sales have recovered slightly, they remain low compared with the housing boom," adding, "Upside for the stock will likely be limited for the time being."