[Click eStock] "Shinsegae Food, Franchise Business Expansion... Expecting Strength Improvement"

Hana Financial Investment Report

[Asia Economy Reporter Minji Lee] Hana Financial Investment maintained a buy rating and a target price of 100,000 KRW on Shinsegae Food on the 4th, stating that significant performance improvements could be seen from the second half of the year due to the expansion of the No Brand Burger franchise business.

Consolidated sales in the first quarter recorded 320 billion KRW, a 5% increase compared to the same period last year. Operating profit turned positive at 5.1 billion KRW, greatly exceeding market expectations. This is interpreted as reflecting strong performance across all business sectors. In the meal service sector, the base effect and restructuring of low-profit channels led to a turnaround to profitability compared to the same period last year. Considering the acquisition of large clients such as Samsung Electronics, annual profitability is expected to recover.

The bakery sector is showing significant performance improvements due to increased sales to Starbucks. First-quarter sales to Starbucks are estimated to have increased by more than 20% compared to the same period last year. The bakery sector's performance improvement driven by strong Starbucks sales is expected to continue throughout the year.

Manufacturing sales expansion and increased profit contribution due to the start of the No Brand Burger franchise business are also being realized. The manufacturing sales contribution related to No Brand Burger in the first quarter is estimated at 500 to 600 million KRW. Although the number of franchise stores is only around 30, meaningful performance contributions are expected to increase in the second half of the year.

Researcher Sim Eunju said, “Synergies are expected from royalty receipts proportional to the number of franchise stores and increased manufacturing plant operating rates,” adding, “Expanding the number of franchise stores by 100 will improve operating profit by 8 to 10 billion KRW.” Assuming an average monthly sales of 60 million KRW and a raw material cost ratio of 35%, the improvement in manufacturing margin is expected to be greater as the number of franchise stores expands. She added, “Significant strengthening is expected next year and the year after when the number of franchise stores exceeds 100.”