[Click eStock] Hotel Shilla Recovering Duty-Free Shops and Hotels

Steady Demand for Chinese Peddlers... Rising Expectations for Tourist Increase

[Asia Economy Reporter Minwoo Lee] Improvements in the performance of Hotel Shilla's duty-free and hotel divisions are expected. As domestic luxury cosmetics gain great popularity among Chinese consumers, the demand from Chinese 'bottari-sang' visiting domestic duty-free shops continues to show steady growth, and there is also growing optimism about the normalization of tourist sales.

On the 28th, KB Securities maintained a 'Buy' rating on Hotel Shilla for these reasons and raised the target price by 9% to 120,000 KRW. The previous trading day's closing price was 98,400 KRW.

KB Securities forecast that Hotel Shilla's second-quarter earnings this year will exceed market expectations (consensus). They estimated consolidated sales of 865.2 billion KRW and operating profit of 43.8 billion KRW for Q2. Compared to the same period last year, sales are expected to increase by 65%, and operating losses are expected to turn into profits. Operating profit is projected to surpass the consensus (30 billion KRW) by 46%, as the performance of downtown duty-free shops and the hotel division is expected to exceed market expectations.

For the downtown duty-free division, sales are estimated at 676.8 billion KRW with an operating profit of 37.2 billion KRW, representing a 72% increase compared to the same period last year. It is also expected to increase by 21% compared to the previous quarter. The operating margin is expected to remain favorable at 5.5%, continuing the trend from Q1. For the hotel and leisure division, sales are projected at 111.8 billion KRW with an operating loss of 1.7 billion KRW. Sales increased by 34% compared to the same period last year, and the deficit significantly decreased from 14.3 billion KRW.

Researcher Shinae Park of KB Securities explained, "Thanks to smooth supply (inventory procurement) and increased demand from Chinese bottari-sang, downtown duty-free sales are expected to grow compared to the previous quarter. Despite the current absolute dependence on bottari-sang, profitability in downtown duty-free shops has been maintained at around 5-6% since Q1." She added, "In the hotel division, with rising vaccination rates and quarantine exemptions for vaccinated domestic and foreign travelers starting next month, domestic travel is becoming more active, leading to a recovery in occupancy rates and a faster-than-expected reduction in losses."