[Click eStock] "Expected 1Q Operating Profit Surpasses Estimates... Hotel Shilla, Rapidly Recovering"

1Q Operating Profit 26.6 Billion KRW... Turned to Black Compared to Previous Year
300 Billion KRW Duty-Free Shop Cost Reduction
Hotel and Leisure Also Showed Strong Jeju-do Occupancy Rate and Increased Average Spending

[Asia Economy Reporter Minwoo Lee] Hotel Shilla is rapidly improving its profitability. This is due to reduced cost burdens at duty-free airport stores and improved performance at downtown stores.

On the 4th, KTB Investment & Securities upgraded its investment opinion on Hotel Shilla from 'Neutral (HOLD)' to 'Buy' and raised the target price by 22.2% to 110,000 KRW, citing these factors.

Hotel Shilla recorded consolidated sales of 727.2 billion KRW and operating profit of 26.6 billion KRW in the first quarter of this year. Although sales decreased by 23% compared to the same period last year, operating profit turned positive compared to the first quarter of last year, which was severely impacted by COVID-19. At that time, Hotel Shilla posted an operating loss of 63.4 billion KRW.

Although duty-free sales were weak due to the Lunar New Year holiday in February and temporary promotional expansions by competitors, profit and loss improvements were notable. Researcher Bae from KTB Investment & Securities explained, "The cost burden at airport stores was reduced by about 30 billion KRW compared to the previous year, and profitability at downtown stores improved to 5%. All these factors are sustainable."

Hotel Shilla recorded duty-free sales of 632.4 billion KRW and operating profit of 41.7 billion KRW in the first quarter. Sales decreased by 26% year-on-year, but operating losses turned into profits. Downtown store sales were similar to the previous year at 558.9 billion KRW. Sales rebounded in January but slowed in February. Recovery resumed in March, strengthening last month. Researcher Bae analyzed, "The proportion of high-margin 'ttaigong' (Chinese peddlers) increased, and promotional competition was avoided."

Although airport store sales were almost non-existent, they turned profitable. Domestic airports were able to reduce costs by about 30 billion KRW year-on-year due to rent linked to sales and the removal of one month's rent following withdrawal from Incheon Airport Terminal 1 (T1). Annual rent amounts to 300 billion KRW. Overseas airports also maintained a profit trend.

Hotel and leisure division sales were similar to the previous year at 94.7 billion KRW. Operating losses were 15.1 billion KRW, a reduction of 2.7 billion KRW compared to the same period last year. Researcher Bae said, "Although Seoul's occupancy rate was sluggish due to restrictions on lodging, Jeju Island's occupancy rate was solid, and the increase in average spending per customer was effective. Last year, workforce reductions were also implemented, slightly reducing fixed costs."