[Click eStock] "Lotte Shopping, Profit Improvement in Second Half to Sustain Stock Price Momentum"

[Asia Economy Reporter Eunmo Koo] There is an analysis that the stock price momentum based on profit improvement in the second half of this year will continue for a while for Lotte Shopping. However, it is considered premature to expect a trend reversal.

On the 20th, Shin-ae Park, a researcher at KB Securities, stated in a report, "Thanks to the favorable conditions in discount stores and supermarkets, efforts in store restructuring, and the effect of reducing selling and administrative expenses, the profit and loss of the discount store and supermarket sectors in the second half of 2020 will improve significantly compared to the same period last year," adding, "Based on upward revisions of earnings estimates and favorable supply and demand, the stock price will continue its rebound trend for the time being." However, she added that there is no situation that would significantly revise mid- to long-term earnings estimates.

On a consolidated basis for the third quarter, total sales are estimated at 5.5298 trillion KRW, a 5% decrease compared to the same period last year, and operating profit is expected to grow by 8% to 94.5 billion KRW. By sector, department stores are expected to see total sales fall by 10% and operating profit decrease by 31% to 71.5 billion KRW, while discount stores are expected to see total sales grow by 0.2% and operating profit reach 25.1 billion KRW. Researcher Park explained, "The increase in demand for groceries due to the implementation of social distancing level 2.5, a low base effect, and strong sales of Chuseok gift sets are expected to have a combined positive impact, leading to a 2% growth in domestic same-store sales compared to the same period last year."

Furthermore, the supermarket sector is expected to see total sales decline by only 3% due to the preference for nearby grocery shopping, and operating losses are projected to shrink significantly to 19.1 billion KRW compared to the same period last year, thanks to the effect of reducing selling and administrative expenses. Other sectors such as Hi-Mart and home shopping are expected to show favorable performance with operating profits increasing by 51% and 13%, respectively, but Culture Works is expected to continue its sluggish trend as operating losses widen to 51.2 billion KRW compared to the same period last year.

The target stock price was raised to 105,000 KRW. Researcher Park explained, "This reflects the increase in the EV/EBITDA multiple applied to the discount store and supermarket businesses from 7.9 times to 8.4 times, as well as the rise in the market capitalization of Lotte Hi-Mart."