SEOUL, KOREA - Daekyo and Woongjin Thinkbig, which produce education materials for the pre-school and elementary school markets, have outperformed the market, rallying 17% and 38% YTD.And, we believe both companies remain attractive as earnings growth should pick up in 2Q13 or 2H13 at latest due to restructuring efforts, and as momentum firms on rising ASP and overseas expansion. Furthermore, shares of both companies are attractively valued as Daekyo trades at 11x 12MF PE and Woongjin Thinkbig 9x PE, well below the consumer stable average of 20x PE. Meanwhile, we revised up our TP for Daekyo from W8,300 to W9,500 as we shift our valuation period to 12MF and raised our target PE from 13.3x to 14x. As for Woongjin Thinkbig, the cost burden should continue through 1H13, but the company should turnaround soon and enterprise value should re-rate upwards as operations normalize and margins pick up on deleveraging.
- 1Q13 sales at Daekyo fell 4% YoY and 12% YoY at Woongjin Thinkbig. OP at Daekyo rose 8% YoY, in line with consensus, but Woongjin Thinkbig disappointed, posting a 29% YoY decline. Despite the estimate-missing results, cost cutting efforts gained traction following labor restructuring and the disposal of loss-making businesses. Specifically, COGS fell 3.4% YoY at Daekyo and 14% YoY at Woongjin Thinkbig, while SG&A expenses fell 13% YoY and 10% YoY, respectively.
- Despite the solid subscriber bases, both companies typically focus marketing efforts in 1Q during the run-up to the new school year. As such, we believe earnings will bottom out in 1Q13, and pick up going forward. Specifically, subscribers for Daekyo’s home-education materials rebounded in 1Q13 after bottoming in 4Q12, and Woongjin Thinkbig’s home education material subscribers should pick up in 2Q13 after bottoming in 1Q13.
- Daekyo’s learning centers and Woongjin Thinkbig’s Think-U continue to bolster the competitiveness of home-education materials. After being launched in 2009, Daekyo plans to open 630 learning centers by yearend, and reached 36% of its target subjects by end-1Q13. We believe progress is solid given the difficulties transitioning to learning centers as 26% of
subscribers are pre-schoolers. Think-U, an online/offline home education system, accounts for more than 25% of subjects, and ASP continues to trend up as competitiveness continues to firm.
*Source: Korea Investment & Securities Co.
