Hyundai Ezwel: Clear growth potential; Expected operating leverage effects

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The author is an analyst at NH Investment & Securities. He can be contacted at [email protected] — Ed.

Hyundai Ezwel is Korea’s largest employee wellness platform operator. As corporate social budgets are not expected to contract, a stable increase in sales is expected from the company’s existing customers. Another positive point, the integration into HDS Group should make it possible to secure additional customers. With commissions representing more than 50% of turnover and a share of variable costs remaining low, strong operating leverage effects should appear in the future.

Secure attractive economic model

Sales at Hyundai Ezwel are divided into commissions (51%; approximately 10% of the transaction amount on the Ezwel platform) and gift certificates (48%). Commissions drive no selling costs, and while the company’s SG&A spend is on the rise, the overall cost share remains low (36% in 2021), driving strong PO growth relative to the ‘sales increase.

Hyundai Ezwel’s growth depends on: 1) expanding corporate social budgets among existing customers; and 2) attracting new customers. Regarding the first point, we note that reducing the benefits budget is difficult given the effects on employee morale. In fact, the benefits budgets of the company’s existing customers have grown at an average annual rate of 7-8% over the past five years. In terms of attracting new customers, we point out that: 1) the company’s market penetration is still low; and 2) it has now become easier for Hyundai Ezwel to attract HDS Group affiliates as customers.


Improved margins this year thanks to operating leverage

While Hyundai Ezwel’s payroll expense has grown since joining HDS Group in 2021, its 2021 OPM reached 16.5% thanks to operating leverage. In 2022, OPM is expected to climb 1.8%p yy to 18.3%.

We expect Hyundai Ezwel to post solid profit growth in 2022, anticipating sales of W107.3 billion (+11.2% YoY) and an OP of W19.6 billion (+23, 1% YoY). While Benefit One (Japan) trades at a 2022E P/E of 46.0x, the figure for Hyundai Ezwel comes in at just 15.3x. Given both the company’s attractive valuations and the current low market penetration of social welfare companies in Korea (compared to Japan), we expect this valuation gap to narrow going forward.

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