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A factory operated by Hansae Co. where workers can check their performances on monitor South Korea’s clothing original equipment manufacturers (OEM) will see a supercycle or a sustained period of expansion driven by robust demand, analysts said. Clothing OEM shares rose unanimously on Tuesday.Hansae Co. closed the day’s trade 10.2% higher at 23,700 won ($19.10). Youngone Trading finished 2.9% higher at 45,100 won. Hwaseung Enterprise rose 1.8% to close at 14,500 won. ‘BEST YEAR YET’Meritz Securities Co. released a report titled “A supercycle is coming to OEM industry,” in which it forecasts the sector will see its best year yet. South Korea’s original manufacturers generally receive orders from global brands based in the West and manufacture them out of factories based in Southeast Asia.There are three main reasons behind the bullish outlook, according to industry insiders.The clothing industry in North America and Western Europe have risen at a rapid speed with a push for stockpiling. The growth estimate for the West’s clothing market stands at 10% compared to Asia’s 4%. In the United States, the turnover rate in the retail clothing sector reached a record high with the lowest in-stock rate. A shopper at Seoul's Dongdaemun Market
The fashion labels’ rush to secure enough stocks pushed the clothing prices higher. The average unit prices continued to slide in the first half of last year but rebounded in the latter half. In particular, the figure for Q4 surged 10% on-year. “The fashion houses are offering higher prices to fill their warehouses,” Ha Nuri, a research analyst at Meritz said.Adding to the positive news, factories in Southeast Asia have resumed their operations to cut down the production costs. There are signs of relief to the global shipment congestion, which will ease the supply chain bottleneck. “The external environment is working in favor of domestic companies; including the strengthening US dollar, the trickle-down effect from market recovery in the West, and the tendency to choose Southeast Asia over China,” Ha elaborated.ATTRACTIVE VALUATIONHansae Co., Youngone Trading, and Hwaseung Enterprise are South Korea’s main clothing OEM companies. Analysts are bullish on all three. Hanse has shown rapid growth and its corporate value is widely considered undervalued. As 85% of its revenue comes from the United States, Hanse is expected to benefit the most out of the three main players. This year’s revenue and operating profit are expected to increase 18% and 33% on-year respectively. The price to earnings (P/E) ratio is expected to be eight times higher. Youngone Trading is benefiting from the strong demand for outdoor and athleisure clothing. “In general, Q1 and Q4 are considered off-seasons,” Hyundai Motor Securities analyst Jung Hye-jin explained. “Given that last year’s Q4 recorded an earnings surprise, this year’s Q1 will also likely show good sales flow.”The company’s operating profit hovered 64% above the market consensus in Q4 2021. A Hwaseung factory in Ho Chi Minh City, VietnamOut of the three main players, Hwaseung Enterprise is the biggest beneficiary of the resumption of operations at factories in Vietnam. The sportsware maker has 60% of its production facilities in the Southeast Asian country.
“The company suffered from production disruption in Vietnam and the lackluster performance of one of its main clients, Adidas, last year,” Ha at Meritz said. The analyst expects better results for Hwaseung this year on the back of Adidas' product diversification and more. By Ji-Yeon Sulsjy@hankyung.comJee Abbey Lee edited this article.
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