Morgan Stanley (NYSE:MS) has initiated coverage on F&F Co Ltd (383220:KS), a South Korean fashion company, with an Equalweight rating and a price target of KRW63,000.00.
The firm's analysis pointed to the stock's significant year-to-date decline, contrasting with the broader KOSPI index's performance.
F&F Co's shares have seen a 37% drop in value since the beginning of the year, underperforming the KOSPI's 4% fall in the same period.
Morgan Stanley attributed this decline to concerns about the company's ability to maintain revenue growth in China and a sluggish performance in the South Korean market.
The analyst noted optimism about the long-term growth potential of F&F's brands, MLB and Discovery (NASDAQ:WBD). However, several factors have led to a more cautious stance, including a conservative strategy for opening new stores in China, a focus on full-price sales and offline channels in the Chinese market, a decrease in domestic average selling prices, and increased operational expenses associated with new brands.
Despite these concerns, Morgan Stanley anticipates that the stock's current valuation could provide a floor for its price.
The price target of KRW63,000 is based on a residual income model and reflects a forward price-to-earnings (P/E) ratio of 6 times, which is approximately two standard deviations below the company's historical average P/E ratio.
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