[Click eStock] "Hotel Shilla, Steady Recovery in Solid Earnings"

[Asia Economy Reporter Song Hwajeong] Yuanta Securities maintained a 'Buy' rating and a target price of 130,000 KRW for Hotel Shilla on the 2nd, expecting a continued steady recovery in solid earnings.

Hotel Shilla posted strong results in the second quarter, surpassing market consensus expectations. On a consolidated basis, Q2 sales increased by 82% year-on-year to 953.4 billion KRW, and operating profit turned positive at 46.4 billion KRW. The operating profit exceeded the consensus estimate of 37.2 billion KRW. Researcher Lee Jin-hyeop of Yuanta Securities explained, "While the duty-free (TR) division maintained a stable recovery in performance, the hotel division showed noticeable improvement compared to the previous quarter." The TR division recorded Q2 sales of 846.5 billion KRW, up 93%, and operating profit turned positive at 47.1 billion KRW. Lee said, "Downtown store sales increased by 93% to 772.9 billion KRW, surpassing the level of Q2 2019 before the COVID-19 outbreak," adding that although the airport store's sluggishness continues, a rapid sales recovery centered on downtown stores is evident. The Hotel & Leisure division posted sales of 106.9 billion KRW, up 28%, with an operating loss of 700 million KRW. Lee noted, "The division recorded results close to the break-even point (BEP)," and said, "Occupancy rate (OCC) and average daily rate (ADR) improved mainly at the Seoul and Jeju locations, showing rapid performance improvement."

There is an opinion that attention should be paid to Hotel Shilla in line with the upcoming reopening of the economy. Lee said, "Although it is true that the global reopening has been stalled due to issues such as the dominance of the Delta variant virus, the direction is ultimately global reopening," adding, "From a mid- to long-term perspective, this is why a portion of the portfolio should be allocated to Hotel Shilla to respond to the global reopening." He also forecasted that the short-term earnings trend will be upward. Lee explained, "The Hotel & Leisure division, which showed improved performance this quarter, will continue to improve during the peak season in Q3, and the TR division's steady recovery in performance will also continue."