APR (278470.KS) is maintaining rapid growth in overseas markets, but brokerages have uniformly lowered their target prices on concerns over slowing profitability. Third-quarter revenue is expected to more than double from a year earlier, yet operating profit will likely fall short of market expectations because of logistics costs tied to the company's European expansion and the stronger won, analysts said.
Shinhan Securities (008670.KS), Hyundai Motor Securities (001500.KS) and Meritz Securities (008560.KS) each cut their target price for APR on the 13th, according to the financial investment industry. Shinhan Securities lowered its target to 510,000 won from 540,000 won, while Hyundai Motor Securities cut its target to 510,000 won from 550,000 won. Meritz Securities also trimmed its target by 6% to 520,000 won. All three brokerages maintained their "buy" ratings.
The brokerages estimate APR's third-quarter revenue at 777 billion to 788.2 billion won, an increase of more than 100% from a year earlier. Their operating profit forecasts, however, ranged from 167.8 billion to 178.1 billion won, below the market consensus of 197.3 billion won. The three brokerages' average operating profit estimate of about 171.7 billion won is roughly 13% lower than the market forecast.
Rising costs from the European expansion are cited as the main reason for the weaker profitability. Hyundai Motor Securities projected that APR's third-quarter European revenue surged 706.2% from a year earlier to 171 billion won. But higher air freight rates, local logistics expenses and sales commissions needed to meet soaring demand are squeezing margins, the brokerage said. It also expected foreign exchange effects from the stronger won to reduce the operating margin by about 2 percentage points.
Shinhan Securities said revenue growth is continuing, led by the United States and Europe, but that profitability has been weaker than expected because of logistics costs, prompting it to cut its net profit estimates for this year and next. The brokerage took a positive view of the increase in the number of APR products ranked in the top 100 on Amazon in the U.S. and the expansion of its offline distribution network.
Analysts are focusing on the potential for an earnings rebound as the company enters its peak fourth-quarter season. "There has been no change in the company's fundamental competitiveness, and top-line growth is also in line with initial expectations," said Park Shin-ae, an analyst at Meritz Securities.
