[Click eStock] "BGF Retail, Expected to Benefit from Contact Transition Next Year"

Kiwoom Securities Report

[Asia Economy Reporter Minji Lee] Kiwoom Securities maintained a buy rating and a target price of 170,000 KRW for BGF Retail on the 8th. Considering the overall improvement in the convenience store industry and the expected sales growth rate and profitability improvement next year due to the transition to contactless services, an increase in weighting is deemed necessary.

Despite the ongoing impact of the novel coronavirus disease (COVID-19), BGF Retail's same-store sales growth rate has generally shown an improving trend. The decline narrowed, with a decrease of about 3.9% in the second quarter and 1.6% in the third quarter compared to a year earlier.

Park Sang-jun, a researcher at Kiwoom Securities, said, "Although there is some uncertainty regarding the overall same-store sales growth rate in the fourth quarter, the COVID-19 shock has eased compared to before, and the same-store sales growth rate from October to November is generally recovering," adding, "Along with the recovery in growth rate, profitability improvement is expected to be strong."

As the impact of COVID-19 eases, if traffic in the convenience store channel recovers next year, strong improvements in sales growth rate and profitability are expected. Sales at special location stores (schools, tourist sites, airports), which shrank by more than 10% year-on-year this year, are expected to recover, leading to an improvement in store mix. Researcher Park explained, "Special location stores, mainly leased by headquarters and directly managed stores, will show a strong operating profit leverage effect due to sales recovery."

With convenience store traffic recovering mainly around urban areas and schools, the proportion of sales from relatively high-profit FF (Fresh Food), HMR (Home Meal Replacement), and processed foods is expected to increase. In fact, the company's general merchandise same-store sales growth rate was estimated to be poor compared to tobacco, which had stockpiling demand, but sales recovery is expected to be strong during the traffic recovery phase.

Researcher Park Sang-jun stated, "Currently, the company's valuation level is only about 70% of the pre-COVID-19 level," and added, "The valuation attractiveness is also considered high."