[Click eStock] "Shinsegae Eases Uncertainty Over Hugel Acquisition... Highlights Undervalued Appeal"

2Q Performance Also Solid... COVID-19 Impact Expected to Be Temporary

On the morning of May 30th, citizens are waiting to enter in front of the Shinsegae Department Store Luxury Hall in Jung-gu. [Image source=Yonhap News]

[Asia Economy Reporter Minwoo Lee] The biggest uncertainty surrounding Shinsegae has been resolved as it announced it will not participate in the acquisition of Hugel. Since the impact of the COVID-19 resurgence on performance is expected to be temporary, it is analyzed that the previously undervalued appeal will be highlighted at this point.

On the 19th, KB Securities maintained its 'Buy' rating and target price of 400,000 KRW for Shinsegae based on this background. The closing price on the previous trading day was 282,000 KRW. This decision was made on the judgment that fundamentals such as performance remain solid while uncertainties have been resolved.

Shinae Park, a researcher at KB Securities, explained, "The 12% decline in Shinsegae's stock price since early June was due to profit-taking desires and concerns about the possibility of acquiring Hugel. The uncertainty related to the Hugel acquisition has been resolved, and the negative impact of the fourth wave of COVID-19 on performance is expected to be temporary, as in past cases. The current stock price is only about 8.5 times the 12-month forward price-to-earnings ratio (PER), highlighting its undervalued appeal."

Strong performance is expected starting from the second quarter. KB Securities forecasts that Shinsegae will record consolidated sales of 2.2569 trillion KRW and operating profit of 79.8 billion KRW in the second quarter of this year. Sales are expected to increase by 30% year-on-year, and operating losses are expected to turn into profits. Market consensus is also expected to be exceeded by 4% and 7%, respectively.

Department store (separate + Dongdaegu) total sales are estimated to increase by 19.4% year-on-year, and operating profit is expected to increase by 239%, with an estimated operating profit of 43.8 billion KRW. Duty-free shops are expected to record total sales of 659.6 billion KRW and operating profit of 24.3 billion KRW. Sales are expected to increase by 72% year-on-year, and operating profit is expected to improve by 61.2 billion KRW, turning from a deficit to a profit. Researcher Park explained, "While downtown store sales grew by 63%, airport stores are estimated to have improved profits due to the change in rent payment method to a sales-based royalty system." Additionally, Central City and Casamia also appear to have grown steadily.