[Click eStock] Hotel Shilla, Profit Expansion Becomes Visible Starting Q2

[Asia Economy Reporter Lee Seon-ae] Ebest Investment & Securities announced on the 3rd that it maintains a buy rating and a target price of 131,000 KRW for Hotel Shilla.

The second-quarter earnings recorded strong results, with sales of 953.4 billion KRW (+82.3% YoY) and operating profit of 46.4 billion KRW (turning to profit YoY), exceeding all of the company's estimates. In the previous report, among the COVID-19 affected industries (hotel/leisure/casino), it was noted as the fastest sector to show a visible earnings turnaround, and the consolidated operating profit was expected to expand faster than anticipated starting from the second quarter.

With the expansion of domestic vaccination rates, it was expected that from the third quarter onward, the recovery of inbound and outbound travelers and the arrival of the peak season for duty-free business would coincide, making the recovery of airport duty-free demand visible. However, due to the resurgence of COVID-19, the recovery of airport duty-free demand is expected to be delayed. While the commission rate for small duty-free shops in downtown duty-free stores continues to rise, the third-quarter earnings are expected to be similar to those of the second quarter. Therefore, profit growth is estimated to appear in the fourth quarter, delayed by one more quarter under the assumption of COVID-19 easing. Considering the sales growth in the hotel & leisure business division during the full-fledged summer peak season in the third quarter and the increase in deferred demand coinciding with the duty-free peak season in the fourth quarter when COVID-19 eases, the momentum for top-line growth and margin improvement in the second half remains valid.

Researcher An Jin-ah of Ebest Investment & Securities explained, "Hotel Shilla's entry into the Hainan Province Aiyou Duty-Free Shop in China seems unlikely to materialize within this year, but attempts to create various revenue sources centered on overseas duty-free shops where the spread of COVID-19 is easing compared to domestic are positive," adding, "When COVID-19 eases, the benefits from domestic and overseas duty-free reopening and hotel demand momentum are judged to be valid."