[Click eStock] "GS Retail, 4Q Operating Profit 28.8 Billion KRW...42% Decrease YoY"

Eugene Investment & Securities Report

[Asia Economy Reporter Minji Lee] Eugene Investment & Securities maintained a buy rating and a target price of 48,000 KRW for GS Retail on the 21st. Although the company is expected to report weak results for the fourth quarter of last year, it is necessary to observe the direction after the merger with GS Home Shopping.

GS Retail's sales and operating profit for the fourth quarter of last year were 2.2227 trillion KRW and 28.8 billion KRW, respectively, down 0.8% and 42.2% compared to the same period last year. Due to the resurgence of COVID-19, the negative impact on major business sectors was significant, making it likely that the results will fall short of market expectations.

Convenience store operating profit is estimated to have decreased by 37.1% from a year earlier to 34.4 billion KRW. The base was high due to one-time gains reflected from the change in lease accounting standards last year, and the same-store sales growth rate was weaker than expected after mid-November due to the impact of COVID-19. Researcher Younghoon Joo of Eugene Investment & Securities said, “Since net store additions are proceeding as expected, convenience store performance improvement is possible starting in March, when sales recovery can begin in earnest.”

In the non-convenience store segment, supermarket operating profit is estimated to have turned positive at 3.2 billion KRW. Cost efficiency from the introduction of chain operations (store location management) began at the end of 2019, so the effect may not be significant from this quarter, but due to a low base from reflecting store closure costs, a substantial increase in operating profit is expected.

The hotel segment is expected to face increased uncertainty. Researcher Joo explained, “The Grand Intercontinental completed renovations and resumed operations in November, but the ban on private gatherings of five or more people and the 50% room reservation limit have resulted in occupancy rates not returning to normal.”

Although concerns about the fourth-quarter results are significant, the gap between the stock purchase rights arising from the merger process with GS Home Shopping and the current stock price is not large, so the pressure on the stock price decline is not high. Researcher Joo stated, “What is more important than the results is the strategy and direction after the merger,” adding, “If a concrete strategy for synergy creation between the two companies after the merger is presented, a revaluation of corporate value will be possible.”