Housing downturn weighs on furniture, material firms

By Nam Hyun-woo

Hanssem Chairman Choi Yang-ha

The heyday of home furniture manufacturers and housing material firms seem to have passed, amid a cooldown in the country's real estate market.

Despite April being a traditional “earning month” for them, analysts are casting a grim outlook on such firms citing negative indexes in the housing market.

According to an auditory filing of Hanssem on Thursday, the domestic furniture, kitchen and bath cabinet manufacturer logged 467.5 billion won ($434 million) in sales in the first quarter of this year, down 5.5 percent from a year earlier.

The company contained the sales drop to a certain level, but couldn't resist its operating profit contracting by a huge margin, down a whopping 56.3 percent to 17.8 billion won during the same period.

Along with the booming real estate market over the past three to four years, Hanssem surpassed the 1 trillion mark in sales in 2013 for the first time in the furniture industry here. It took just four years for it to double the sales, logging more than 2 trillion won in sales last year.

The value of the company also rose 20-fold during the same period. In December 2012, Hanssem shares were traded around 15,000 won, but soon peaked to 347,000 won on Aug. 13, 2015, and remained at the 200,000 won level in the first half of last year.

But it couldn't keep the momentum in the second half of last year. The government has released a series of tough mortgage regulations to chill the “overheated” domestic real estate market, curtailing home trades, and the company's employees were embroiled in a sexual assault case, sparking a consumer boycott.

Though Hanssem managed to continue bulking itself up last year, its profitability was aggravated, with the 2017 operating profit declining by 11.9 percent from a year earlier. The share price also continued to shed, ending at 119,500 won on Thursday, down 2.46 percent from a session earlier.

“As the real estate market cools down after the government regulations, Hanssem's business-to-consumer (B2C) sales declined quickly,” Mirae Asset Daewoo analyst Lee Kwang-soo said. “Given its B2C channel's contribution to the overall earnings, a short-term rebound seems to be unlikely for Hanssem.”

Hyundai Motor Investment & Securities analyst Sung Jung-hwan also said: “The country's housing transactions will be on a downturn after this month and we believe it will take time for the company to regain growth momentum.”

According to Mirae Asset Daewoo, the number of apartment transactions in Seoul stood at 13,840 in the first quarter this year, down 17 percent year-on-year. Along with the slow transactions, the country's apartment occupancy rate also remains at the 70 percent level, casting woes not only for builders but also furniture and materials firms.

On the local bourse, LG Hausys, which makes windows, curtain walls, floors and other interior materials, is trading around 80,000 won this year, down from 110,000 won in the first half of last year. KCC, another interior materials maker, is also showing volatile movements this year, swinging between 400,000 won and 330,000 won.