[Click eStock] "Hotel Shilla, Continued Demand Recovery Centered on Downtown Duty-Free Shops Expected"

Kiwoom Securities Report

[Asia Economy Reporter Minji Lee] Kiwoom Securities maintained its buy rating on Hotel Shilla on the 2nd and kept the target price at 125,000 KRW. This is based on the judgment that the recovery trend in demand centered on downtown duty-free shops continues, and with the ongoing increase in vaccination rates, expectations for performance improvement due to the recovery in travel demand will gradually grow.

In the second quarter, Hotel Shilla's sales amounted to 953.4 billion KRW, an 82% increase compared to the same period last year. Operating profit was 46.4 billion KRW, exceeding market expectations. The duty-free sector recorded sales of 846.5 billion KRW in the second quarter, a 34% increase compared to the first quarter. Downtown store sales rose by 38% compared to the first quarter, significantly surpassing the domestic duty-free market growth rate of 12%.

Researcher Sangjun Park of Kiwoom Securities said, “The strong demand from small-sized Thai buyers at the Seoul store and the increase in domestic duty-free market share had a positive effect,” adding, “Although the commission rate relative to downtown store sales rose by 4.8 percentage points compared to the first quarter due to strengthened promotional activities, the overall fixed cost reduction and operating leverage effect from increased sales kept the decline in operating profit margin to 1 percentage point compared to the first quarter.”

Sales in the hotel and leisure sector reached 107.4 billion KRW, a 28% increase compared to the same period last year. With the rise in occupancy rates and strengthened sales of linked products, improvement in the average daily rate (ADR) per room was observed, and the reduction in operating losses relative to sales growth was stronger than expected.

The recovery trend in demand centered on downtown duty-free shops is expected to continue in the second half of the year. Researcher Park said, “Although the hotel and leisure sector’s peak season effect in the third quarter is expected to be somewhat weak due to the social distancing level being raised from July, performance similar to the second quarter can be achieved,” and analyzed, “Considering the ongoing increase in vaccination rates domestically and internationally, expectations for sales and profit growth across all business divisions due to travel demand recovery will gradually strengthen next year.”