[Click eStock] "Shinsegae, Remarkable Growth in Department Store Sector... Target Price Up 20%"

Eugene Investment & Securities Report

[Asia Economy Reporter Minji Lee] Eugene Investment & Securities on the 9th issued a buy rating and raised the target price for Shinsegae by 20% to 360,000 KRW. This reflects the growth in the department store sector and the recovery in the duty-free shop sector.

Shinsegae's sales and operating profit for the first quarter are expected to be 1.3 trillion KRW and 89.8 billion KRW, respectively. Considering that the operating profit in the first quarter of last year was 3.3 billion KRW due to COVID-19, a significant profit improvement is anticipated.

Looking at the performance of the core department store sector, the same-store sales growth rate in February was around 40%. Given that the performance in March last year was the worst ever, it is expected that the same-store sales growth rate this month could easily exceed 50%.

Researcher Younghoon Joo of Eugene Investment & Securities said, “Even considering the base effect, this figure is nearly double the growth rate of the online market, making it sufficient momentum for short-term stock price gains,” adding, “Growth is currently centered on luxury goods and home appliances, which have relatively low mid-level margins, but as demand for outings recovers, the clothing sector's recovery will accelerate, and profitability is expected to exceed expectations.”

The operating profit of the duty-free shop sector is expected to be 18.4 billion KRW. This is due to the reduction in rental fees at Incheon Airport duty-free shops and the improvement in depreciation expenses following the recognition of impairment losses on right-of-use assets. Although international travel remains restricted and various issues such as regulations on peddlers persist, it is judged that the bottom in terms of profit and loss has passed.

The fact that the value of e-commerce companies is rising due to Coupang's IPO is also positive. The company holds a 26.8% stake in SSG.COM. Researcher Joo explained, “As interest in contact industries is increasing recently, the investment attractiveness of the department store sector is high,” and added, “Since a turnaround is underway, sustained interest should be maintained until the direction changes.”