The author is an analyst at KB Securities. She can be contacted at [email protected] — Ed.
Acquisition aimed at securing a new growth driver
– On March 22, HDS announced that it would acquire a 35.8% stake in furniture/mattress company Zinus for KRW 894.7 billion (KRW 774.7 billion in shares held by founder Lee Yun- jae, KRW 120.0 billion in new shares via a private placement).
– HDS plans to use its cash and fund ~KRW 600.0 billion via loans. It holds liquidity of KRW 720.0 billion (at the end of 2021; KRW 46.6 billion in cash, KRW 10.1 billion in short-term financial products, KRW 663.3 billion in beneficiary certificates/accounts integrated/depots).
– Zinus EV is valued at KRW2.5tn (114% premium to March 22 market cap of KRW1.17tn).
— Lee Yun-jae is expected to continue to participate in management after the shares are sold. With an approx. 7% of the capital, it will be the second shareholder.
HDS is preparing to diversify its business portfolio and contribute to its growth
— New business to overcome limitations faced by national department stores: The domestic department store market is mature, with limited margin for store openings, so strong growth is unlikely. To overcome this, HDS entered the DFS business in 2018. This latest acquisition should diversify the company’s business portfolio and contribute to its growth.
— Awareness of the Zinus brand must grow; distribution network to expand: For 2021, Zinus recorded domestic sales of only KRW 31.0 billion (3% of consolidated sales). HDS plans to expand Zinus’ distribution network through its multiple online stores and malls (eg, thehyundai.com). To reinforce the awareness of the Zinus brand, it aims to set up experience centers in stores/points of sale and to create dedicated spaces online. Additionally, we see the company adding premium mattresses to its current low/mid price offerings.
— Synergies with Hyundai subsidiaries to come: we expect synergies with Hyundai subsidiaries, including collaborations with Hyundai Home Shopping, Hyundai Rental Care, Hyundai Livart and Hyundai L&C.
– HDS forecast has Zinus 2025 revenue at KRW2.0tn (2021 revenue: KRW1.1tn).
Zinus: #1 in its category by sales in the United States on Amazon
— Founded in 1979, Zinus sells mattresses, box springs, mattress toppers and pillows. As the first company to use mattress compression technology for box shipping, it is #1 in its category in US sales on Amazon, controlling approximately 30% of the US online mattress market . The United States accounts for 88% of the company’s overall revenue, followed by Canada (4%) and Korea (3%).
– Zinus announced a turnover/OP in 2021 of 1.12 tn KRW (+14% YoY) / 74.3 billion KRW (-14% YoY).
— In 2021, Zinus revenue growth slowed compared to 2019 (+13%) and 2020 (+21%). Global supply chain bottlenecks and an increase in ocean freight rates have delayed shipping. GPM deteriorated by 4.3pp yoy, which we attribute to higher raw material prices, higher ocean freight rates and anti-dumping tariffs on mattresses made in Indonesia.