[Click eStock] GS Retail, Focus on Structural Growth Potential 'Target Price Maintained'

[Asia Economy Reporter Lee Seon-ae] Hanwha Investment & Securities stated on the 20th that although GS Retail's Q4 earnings are expected to fall short of initial estimates, it is a time to focus on the potential for structural growth in 2021 rather than short-term earnings slowdown, maintaining a buy rating and a target price of 60,000 KRW.

GS Retail's Q4 consolidated sales are estimated at 2.2731 trillion KRW (up 1.4% year-on-year), and operating profit at 38.2 billion KRW (down 23.3% year-on-year). The negative outlook for Q4 earnings is based on unfavorable weather, weakened customer traffic due to COVID-19, margin decline caused by an increased proportion of tobacco sales, poor performance due to decreased demand for cosmetics and other outing products, and a decline in hotel business contribution due to increased fixed costs.

However, growth through store openings is expected to continue. Nam Seong-hyun, a researcher at Hanwha Investment & Securities, explained, "Recently, the convenience store industry’s openings are believed to be led by the top two companies, with continued increased demand for new store openings and relatively low opening costs," adding, "Store openings are rapidly expanding again."

Researcher Nam further analyzed, "The net increase in stores of the top two companies exceeds 2,000, driving market growth," and "Despite aggressive store openings, the cannibalization effect among stores is not significant, so stable profit contributions are expected."

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