1. What Happened? : Earnings Shock Analysis

Hwasung Enterprise’s Q2 2025 earnings significantly underperformed across all metrics. Revenue decreased by 18%, operating profit plummeted by 60.8%, and most concerningly, net income swung to a substantial loss.

2. Why Did This Happen? : Reasons for the Decline

The key factors contributing to the disappointing results include:

  • • Over-reliance on Adidas ODM Sales: The company’s heavy dependence on Adidas for 99.7% of its revenue exposed its structural vulnerability.
  • • Rising Raw Material Prices and Costs: Increased cost pressures significantly impacted profitability.
  • • Increased Financial Expenses and Foreign Exchange Losses: The company’s large foreign currency debt made it susceptible to exchange rate fluctuations.

3. What’s Next? : Short-term and Long-term Impacts

3.1. Short-term Impacts

  • • Downward Pressure on Stock Price
  • • Heightened Financial Concerns
  • • Potential Target Price Downgrades by Analysts

3.2. Long-term Impacts

  • • Increased Challenges in Improving Profitability
  • • Re-evaluation of the Relationship with Adidas
  • • Greater Need for Financial Structure Improvement
  • • Growing Importance of ESG Management

4. What Should Investors Do? : Investment Strategy

A conservative approach is recommended at this time. Investors should closely monitor the following:

  • • Signs of Earnings Recovery
  • • Efforts to Strengthen Financial Health
  • • Progress in Securing Alternative Growth Drivers