[Into the Stocks] Shop at KOSPI Luxury Hall 'Shinsegae International'

Anti-Coupang United Front Established with Naver... Shinsegae International the Biggest Beneficiary
SI Village Accelerates Growth as a Luxury Platform... Performance Improves with Economic Recovery

Shinsegae International's online mall SI Village.

[Asia Economy Reporter Lee Seon-ae] Shinsegae Group and Naver have joined hands to build an anti-Coupang alliance. Which company stands to benefit the most? The securities industry is focusing on Shinsegae International, a fashion and cosmetics company affiliated with Shinsegae Group. It is expected to further solidify its position as the "luxury hall of KOSPI."

Shinsegae International as the Biggest Beneficiary, Expanding Sales Channels through Naver Platform

According to the financial investment industry on the 19th, Shinsegae Group and Naver are exchanging shares worth 250 billion KRW and are pushing for comprehensive cooperation in commerce, logistics, and membership. Under this agreement, Emart will swap 824,176 treasury shares (2.96% stake) for 389,106 Naver shares (0.24% stake), and Shinsegae will exchange 488,998 Shinsegae International shares (6.85% stake) for 259,404 Naver shares (0.16% stake). After the share swap, Shinsegae's stake in Shinsegae International will decrease from 45.8% to 38.9%. Meanwhile, Naver will hold a 6.85% stake in Shinsegae International.

The securities industry predicts that Shinsegae International will be the biggest beneficiary of this "shopping alliance." Hanuri Jeong Eun-su, a researcher at Meritz Securities, explained, "As the sole 'content provider,' an expansion of the consumer base is expected. Until now, online sales have relied on Shinsegae Group's sales networks, SSG.com and SI Village, but through Naver, additional online sales channels can be opened." Since the number of stores entering Naver Smart Store is increasing recently, the enhancement of Naver's brand competitiveness is seen as a direct benefit to Shinsegae International. Shinsegae International is one of the largest domestic brand operators in cosmetics and fashion, handling all categories of consumer goods including clothing, cosmetics, and household items. It owns more than 40 brands combined from proprietary, licensed, and distribution rights.

Lee Ji-young, a researcher at NH Investment & Securities, also noted, "Since Shinsegae International is the smallest among affiliated companies in terms of size, even a small benefit can significantly increase the overall corporate performance. As the largest distributor of luxury brands domestically, Shinsegae International is expected to greatly expand its sales channels through the Naver platform." Last year, Emart posted an operating profit of 237.2 billion KRW, Naver 1.2153 trillion KRW, while Shinsegae International recorded 33.8 billion KRW.

The combined major shareholder stake of Shinsegae International remains at 60.9%, but the shareholder composition changes as 6.85% of Shinsegae's stake transfers to Naver. The largest shareholder, Shinsegae's stake, decreases to 38.91%, and Naver newly acquires a 6.85% stake. Shin Jung-yu, the general director of Shinsegae, maintains a 15.14% stake.

Son Hyo-joo, a researcher at Hanwha Investment & Securities, explained, "Even after the share exchange, Shinsegae's holding remains at 38.91%, so there is no concern from a governance perspective. Through collaboration with Naver, Shinsegae International's e-commerce channel capabilities are expected to strengthen."

All About Premium Consumption, Clothing Base Effect and Leap to Luxury Platform

Shinsegae International's annual sales last year were 1.3279 trillion KRW (-6.8%), and operating profit was 33.8 billion KRW (-60.0%), showing sluggish performance due to the impact of COVID-19. However, performance varied by business segment. Domestic fashion and cosmetics duty-free businesses inevitably declined, but overseas fashion and cosmetics grew due to increased demand for high-end products from domestic consumers.

This year, the fashion business is expected to benefit from a base effect. Domestic clothing sales grew 31.8% compared to last year through February. Interestingly, sales also increased 29.4% compared to 2019, indicating performance beyond the base effect. Lee Hyuk-shin, senior researcher at Samsung Securities, said, "We expect a full-scale revival of fashion sales this year."

Shinsegae International is also expected to be re-evaluated as a premium platform company. Despite the consumption environment being constrained by COVID-19 last year, premium products supported Shinsegae International's performance. Particularly, in the fourth quarter of last year, overseas fashion (+7%) and imported cosmetics (+37%), which are mainly premium products, both rebounded and continued steady growth.

Shinsegae International is expanding its premium cosmetics line. It is advancing the global launch of overseas brands (Swiss Perfection) and expanding its own brand (Roybi). The luxury sales channels are also developing similarly. The online luxury platform SI Village is increasingly utilized through linkage with SSG.com. Recently, Shinsegae Duty Free's luxury inventory was sold through SI Village. The product range has expanded from clothing and beauty to bags, watches, and jewelry. The senior researcher said, "SI Village of Shinsegae International can be called a premium platform selling luxury goods, cosmetics, and clothing."

Still Cheap Despite the Rise, Target Price Upgrades Flood In

As of 12:01 PM on the day, Shinsegae International was trading at 206,600 KRW, down 1.44% from the previous day. Since the beginning of this year until the closing price on the 17th, it has risen 27.95%. However, the general view in the securities industry is that there is still significant upside potential. Earnings improvement is expected to support this, leading to a flood of target price upgrades.

On the 16th, Hanwha Investment & Securities raised Shinsegae International's target price to 250,000 KRW. This is based on expectations that overseas fashion and cosmetics will continue to grow this year, and that the domestic fashion and cosmetics duty-free business, which had been sluggish, will recover with economic normalization. Annual sales for this year are projected at 1.4194 trillion KRW (+6.9%) and operating profit at 66.3 billion KRW (+96.3%).

Attention was paid to growth recovery through the cosmetics business portfolio. Son Hyo-joo, a researcher at Hanwha Investment & Securities, said, "Despite very difficult external conditions last year, the cosmetics division continued to strengthen its portfolio. When the economy fully normalizes, growth is expected to recover through the enhanced cosmetics business portfolio."

Hyundai Motor Securities on the 12th forecasted a continued recovery trend in Shinsegae International's performance and raised the target price from 195,000 KRW to 225,000 KRW. Jeong Hye-jin, a researcher at Hyundai Motor Securities, emphasized, "Although retail traffic recovery is still slow, major upstream retail channels are seeing demand recovery due to improved consumer sentiment. With the luxury brand portfolio strengthening, growth momentum in the cosmetics sector is expected to strengthen, leading to an upward trend in the stock price."

KB Securities raised the target price from 215,000 KRW to 220,000 KRW (a 2.32% increase) on the 2nd. Park Shin-ae, a researcher at KB Securities, predicted, "As quarterly earnings confirm sales and profit improvement trends, the stock price will seek further gains. Cosmetics sales are expected to grow 18%, and operating profit to reach 54.7 billion KRW, contributing most significantly to overall sales and profit growth." The consolidated sales for this year are forecasted at 1.4499 trillion KRW, with operating profit at 73.1 billion KRW.

In February, both NH Investment & Securities and Yuanta Securities set the target price at 220,000 KRW. Lee Ji-young, a researcher at NH Investment & Securities, explained, "Considering profitability improvement due to increased proportion of direct mall sales, we raised EPS for 2021 and 2022 by 5.7% and 2.5%, respectively, leading to a target price upgrade." She especially advised attention to the high growth of SI Village. Last year, SI Village's transaction volume was 130 billion KRW, doubling compared to the previous year. Its share of total sales is about 10%. This year, transaction volume is expected to exceed 200 billion KRW.