FILA Holdings: Waiting for FILA

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The author is an analyst of NH Investment & Securities. She can be reached at jiyoony@nhqv.com. — Ed.

FILA Holdings’ margin improvement should be slow-paced owing to investment aimed at boosting the sustainability of the FILA brand. But, we draw attention to its mid/long term goal of integrating licensees and growing its D2C channel portion. Expectations are strong for FILA Holdings, as the company should benefit greatly from economic reopening thanks to its high global exposure.

Excessively undervalued in light of future value

We initiate coverage on FILA Holdings with a Buy rating and TP of W42,000. Our TP was derived via a SOTP valuation method. [Main business] To calculate FILA’s operating value, we apply a target P/E of 10xto 12M FWD NP. Our target multiple is based on the 2019~2021 average 12M FWD P/E of 10x as the firm’s valuation premium subdued after it entered the Chinese and US markets in 2018. [Subsidiary] We applied a holding company discount rate of 50% to the firm’s 51% stake in NYSE-listed Acushnet. FILA Holdings’ Mar 24 share price of W31,700 is equivalent to a 2022E P/E of 7x and offers 32% upside.

Acushnet to lead 1H22; FILA to lead 2H22

We forecast consolidated 2022E sales of W3,845.5bn (+1% y-y) and OP of W477.2bn (-3% y-y). FILA Holdings is expected to exhibit sluggish sales in 1H22, followed by a sales rebound in 2H22. The firm plans to lay the foundations for sustainable growth via brand value strengthening and D2C channel expansion. In 1H22, sluggish margin growth is expected following the appointment of a new creative director and increased R&D costs. However, under the leadership of its new director, FILA plans to enhance marketing efficiency from 2H22 and roll-out new collections from spring/summer next year. Due to high growth of 29% last year, Acushnet is to suffer from high-base effect. But, as the golfing community has expanded globally for the past two years, absolute sales volume is to be maintained for the time being. The firm should also benefit from the PGA, LPGA, and DP world tours from April through June.

Monitor mid/long-term direction

While FILA Holdings’ short-term earnings visibility is strong, we draw attention to its mid/long-term drive to integrate licensees and grow its D2C channel portion.We also positively view its shareholder return policies, including presenting a 2026F DPR target of around 50% on a consolidated basis. The firm has also diversified its regional portfolio to include China, the US, Latin America, and EMEA. Against this backdrop, expectations are high that FILA Holdings will benefit greatly from consumption recovery in line with economic reopening thanks to its high global exposure.

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