Company-wide earnings improvement to resume

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The author is an analyset of NH Investment & Securities. He can be reached at esshim@nhqv.com — Ed.

H.PIO specializes in health functional food manufacturing and brand marketing. Denps, a premium brand, is expanding its product portfolio focusing on vitamin products. In addition to its solid main business, H.PIO is expanding its business portfolio to diverse consumer goods areas through subsidiaries. A company-wide earnings turnaround is anticipated this year.

Comprehensive consumer goods player engaged in steady business expansion

H.PIO is a comprehensive consumer goods player that is steadily expanding its product lineups and business domains, anchored by premium brand Denps. The company’s major subsidiaries include Pio-pharm, a health functional food OEM/ODM, and Geo Infotech, a micro kickboard distributor. Copenhagen Recipe, which runs a pet food business, was merged last February. The company also owns subsidiaries that produce, distribute, and sell health functional food in Denmark, China, Spain, and Singapore.

Evolving into premium consumer goods branding firm; overall earnings set to rise

H.PIO’s profit deteriorated last year due to overheated competition in the health functional food market and large-scale marketing expenses for TV commercials. However, an earnings turnaround is expected this year via margin improvement plans, including expanding the firm’s portion of online sales. We also believe that growth at H.PIO’s major subsidiaries will sustain, resulting in a company-wide earnings turnaround and further steady business expansion.

Moving ahead, we expect H.PIO to expand its premium brand business to encompass a wide variety of consumer goods areas. Preparing to diversify its product domains, the company recently added ‘various business purposes’ to its articles of incorporation. From a mid/long-term perspective, organic and inorganic growth is anticipated through the launch of a new brand, utilizing cash holdings estimated at W50bn.

H.PIO’s shares are currently trading at a 2023E P/E of 10.1x, an undemanding level in our view. Although its share price has retreated significantly recently due the continued sluggish earnings, we believe that the company is now well situated to enjoy earnings turnaround at both its main business and subsidiaries.

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