Coway (021240 KR): Uncertainty Priced In, a Rare Entry Point to a High-Quality Company

Coway: Business Model Proves Resilient, Earnings Upgrades Set to Continue

Coway: Overseas Operating Leverage Kicking In

Coway: Update Following AGM, Revised Dividend Policy and 1Q2020 Results

Global Emerging Market Equities, Propitious Research

Wium Malan, CFA

Global Emerging Market Equities

Independent, Fundamental Quantitative Research

Propitious Research

Fully independent, fundamental and quantitative equity research, focused on companies in the Telecommunication, Media, Technology, Internet and Healthcare sectors in the Global Emerging Markets. Idea generation focused on Quality stocks, trading below their intrinsic Value, with sound Corporate Governance.

Equity Bottom-Up

<a href="https://www.smartkarma.com/entities/coway-co-ltd" target="_blank" data-smartkarma-citation="entities:3022:1" rel="noopener">Coway Co Ltd (021240 KS)</a>, the leading water- and air purifier rental company in South Korea was traditionally an attractive dividend yield play until early 2020 when ownership, and strategy, changed from upstreaming cash to private equity towards investing for longer-term sustainable growth. Since mid-2020 its share price has been under pressure given doubts on management’s ability to execute on reigniting growth, as well as perceptions around domestic market share losses. Even after its recent positive share price move, post 1Q21 results, Coway is still trading on just 12.3x NTM PE which is more than one standard deviation below its 5-year historical average trading range. This implies a PEG ratio of just over 1.5x, which is certainly not demanding for a company that delivers ROEs of well above 20%, is highly cash generative, and commands leading market share in its domestic and key overseas markets. In this insight I look at recent results, and catch up with management, to look for evidence that the strategy could be working and assess whether the potential for longer-term value unlock exists.

Coway Co Ltd (021240 KS), the leading water- and air purifier rental company in South Korea was traditionally an attractive dividend yield play until early 2020 when ownership, and strategy, changed from upstreaming cash to private equity towards investing for longer-term sustainable growth. Since mid-2020 its share price has been under pressure given doubts on management’s ability to execute on reigniting growth, as well as perceptions around domestic market share losses. Even after its recent positive share price move, post 1Q21 results, Coway is still trading on just 12.3x NTM PE which is more than one standard deviation below its 5-year historical average trading range. This implies a PEG ratio of just over 1.5x, which is certainly not demanding for a company that delivers ROEs of well above 20%, is highly cash generative, and commands leading market share in its domestic and key overseas markets. In this insight I look at recent results, and catch up with management, to look for evidence that the strategy could be working and assess whether the potential for longer-term value unlock exists.

Coway: Transitioning from Dividend Play to Growth Stock