Increasing Stakes by Emart and Hyundai Department Store
Gradual Improvement in Retail Industry Outlook
Expanded Buying in Food and Beverage Stocks
[Asia Economy Reporter Park Ji-hwan] The National Pension Service (NPS) has started buying retail stocks at their lowest points following the significant drop in stock prices due to the impact of the novel coronavirus disease (COVID-19). The buying trend is also expanding to food and beverage stocks, which are categorized as domestic consumption stocks along with retail stocks.
According to FnGuide and the Financial Supervisory Service's electronic disclosure system on the 6th, the NPS announced through a disclosure on the 5th that it increased its stake in Emart by 0.03 percentage points last month. The NPS also raised its holding in Hyundai Department Store from 12.48% to 12.59%, an increase of 0.11 percentage points during the same period.
This move by the NPS contrasts with its behavior in the second quarter when it reduced its holdings in retail stocks due to the impact of COVID-19. From April to June, the NPS lowered its stake in Emart from 13.46% to 13.15%, and Hyundai Department Store from 13.51% to 12.48%.
The stock prices of retail companies remain significantly low. Emart's stock price fell 9.2% from 125,500 KRW at the beginning of the year to 114,000 KRW as of the previous day. Hyundai Department Store's stock price plunged 31.4%, from 85,900 KRW to 58,900 KRW. This decline in stock prices is primarily due to poor earnings performance. Hyundai Department Store's consolidated operating profit for the first quarter of this year dropped 80.2% year-on-year to 14.9 billion KRW due to deteriorating business conditions. Emart's first-quarter operating profit also decreased by 34.8% compared to the previous year.
Despite the earnings shock recorded in the retail industry in the first quarter due to COVID-19, securities industry forecasts are gradually improving. Department stores recovered their sales to normal levels in June after hitting a low point in March. Emart's June performance, which was heavily impacted by emergency disaster relief funds, is also seen as shaking off the burden. In particular, the shift of overseas travel demand to domestic destinations during the vacation season is expected to provide additional earnings momentum.
Park Jong-dae, a researcher at Hana Financial Investment, said, "The annual domestic duty-free consumption size approaches 4 trillion KRW," adding, "The fact that duty-free consumption of cosmetics and luxury goods completely overlaps with department store consumption is positive." He analyzed that if domestic demand from duty-free shops can be brought to department stores, the annual sales growth rate of department stores could increase by more than 10 percentage points.
The NPS's buying spree is also expanding to food and beverage stocks. On the 14th of last month, the NPS purchased 704,629 shares of HiteJinro, raising its stake by 1.0 percentage point. It also bought 747,818 shares of Lotte Chilsung Beverage on the 28th of last month, increasing its stake by 0.38 percentage points. In addition, the NPS recently accumulated high-dividend stocks such as SK Telecom and Korea Financial Group.
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