Why Distribution and Delivery Stocks Are Excited About This Year’s Chuseok Shopping Season

Impact of COVID-19 and Untact... Emart Hits 52-Week High, Taerim Packaging Also on the Rise

[Asia Economy Reporters Song Hwajeong and Park Jihwan] As the Chuseok holiday approaches, stocks related to distribution and delivery services are stirring. Especially this year, the impact of non-face-to-face (untact) interactions due to the novel coronavirus disease (COVID-19) is also evident.

As of 9:10 a.m. on the 11th, Emart was traded at 149,000 KRW, up 2.41% (3,500 KRW) from the previous day. This marks six consecutive trading days of gains. The previous day, the stock rose intraday to 155,000 KRW, setting a new 52-week high. Emart has recorded gains every day except one this month, continuing its record-high streak. It has risen more than 21% since the beginning of the month.

Although the offline sector has been sluggish due to COVID-19, the online sector has shown strong performance, raising expectations for improved earnings. Especially this Chuseok, with overseas travel virtually impossible due to COVID-19, it is expected to fully benefit from the Chuseok peak season effect. Emart's total sales and net sales last month increased by 3.7% and 5.4%, respectively, compared to the same period last year, exceeding market expectations.

Park Eun-kyung, a researcher at Samsung Securities, said, "The strong demand for home dining due to COVID-19 will continue to drive solid earnings," adding, "Demand during the Chuseok holiday period is expected to be more pronounced than in previous years." In the past, between 500,000 and 1 million people chose overseas travel during the Chuseok holiday, but this year, overseas travel is virtually impossible, and dining out is also difficult.

In particular, operating profit in the third quarter is expected to turn positive compared to the same period last year for the first time in 11 quarters. Joo Young-hoon, a researcher at Eugene Investment & Securities, said, "Emart's third-quarter net sales and operating profit are expected to reach 5.6574 trillion KRW and 119.3 billion KRW, up 11.7% and 2.6% respectively from the same period last year," adding, "Offline discount store channels have faced structural difficulties in recent years, leading to poor performance and stock prices, but with operating profit expected to increase compared to the previous year for the first time in 11 quarters, expectations are rising."

Previously, travel and airline stocks showed notable gains during the Chuseok season. However, this time, the government is emphasizing 'social distancing' due to the resurgence of COVID-19, significantly reducing face-to-face contact involving travel, which is expected to be replaced by gift delivery services. Due to COVID-19, traditional holiday scenes such as shopping for ceremonial tables, visiting hometowns, and family gatherings are likely to become rare.

The securities industry expects the parcel volume, which increased by 20-30% in the first half of this year compared to the same period last year, to continue a similar upward trend in the second half. The delivery sector has already greatly benefited from the increased untact demand triggered by COVID-19. CJ Logistics, the number one delivery company, recorded parcel division sales of 1.508 trillion KRW in the first half of this year, a 27.4% increase from 1.184 trillion KRW in the same period last year.

The stock price trend is also clearly upward. CJ Logistics' stock price rose 7.2% from 145,500 KRW on the 20th of last month to 156,000 KRW the day before. Bang Min-jin, a researcher at Eugene Investment & Securities, said, "CJ Logistics' parcel volume in the third quarter is expected to grow more than 25% compared to the same period last year, showing a solid performance," adding, "Market growth is more robust than expected, and profit growth is expected to continue next year."

The increase in parcel volume has also attracted investors' attention to corrugated cardboard companies that produce packaging materials used as raw materials for boxes. Currently, Taerim Packaging, the market leader in the domestic corrugated cardboard market, saw its stock price rise 13.6% from 3,945 KRW at the end of last month to 4,480 KRW the day before. Other companies such as Daeyoung Packaging (5.6%) and Sambo Paper (2.9%) also showed gains.

A financial investment industry official said, "Even after the COVID-19 crisis ends, customers accustomed to online ordering may maintain this behavior for a long time," and predicted, "The growth of the e-commerce industry brought about by COVID-19 will continuously increase parcel volume and demand for packaging materials."