[Click eStock] "Hyundai Department Store, Expects New Duty-Free Store Effect This Year"

[Asia Economy Reporter Song Hwajeong] NH Investment & Securities maintained its 'Buy' rating and a target price of 120,000 KRW for Hyundai Department Store on the 23rd, expecting that this year the effect of new duty-free store openings will continue next year with the effect of department store openings.

Lee Ji-young, a researcher at NH Investment & Securities, said, "This year, the momentum of new duty-free store openings (Dongdaemun store scheduled to open in February) and next year, the effect of department store openings (Yeouido store scheduled to open in January 2021) will continue," adding, "The current stock price is only 8.7 times the 2020 price-earnings ratio (PER), making it highly attractive for investment at this point."

This year, the improvement in the duty-free store's performance is expected to stand out. The researcher explained, "Hyundai Department Store's duty-free division's sales are estimated to increase by 135% year-on-year to 1.9 trillion KRW, and operating loss is expected to decrease by 41.4 billion KRW to 31.3 billion KRW," adding, "The Gangnam store is expected to have sales of 1 trillion KRW and an operating loss of 21.3 billion KRW, but with increased store competitiveness and achieving economies of scale, reaching the break-even point (BEP) within the second half of the year is anticipated." The Dongdaemun store is expected to record sales of 900 billion KRW and an operating loss of 10 billion KRW. The researcher said, "Even when the previous operator managed it, sales were 800 billion KRW, at the BEP level," adding, "Although rent increased by 10 billion KRW due to the change of operator, it is expected to be fully offset by labor efficiency and economies of scale."

Last year's fourth-quarter performance is expected to meet expectations. NH Investment & Securities forecast Hyundai Department Store's consolidated fourth-quarter net sales at 612.5 billion KRW and operating profit at 105.7 billion KRW, representing increases of 15% and 7% respectively compared to the same period last year. The researcher estimated, "The department store division's total sales increased by 1% to 1.6579 trillion KRW, while operating profit decreased by 2% to 121 billion KRW," adding, "Thanks to strong sales of global luxury brands, the same-store sales growth rate for the department store in the fourth quarter was 1.7%. However, due to weak clothing sales caused by a warm winter, profitability likely did not improve significantly."

The duty-free division's total sales are estimated to have increased by 237% to 236.1 billion KRW, with an operating loss of 15.3 billion KRW. The researcher said, "Daily sales in the fourth quarter reached 2.3 billion KRW," adding, "Despite cuts in marketing promotions such as commissions, the increase continued compared to 2.1 billion KRW in the third quarter due to strengthened store competitiveness. Thanks to the decline in commission rates, the operating loss margin also narrowed."