[Click eStock] "Shinsegae International, Stock Price Rebound Delayed Due to Variant Virus"

Investment Sentiment Weakens Amid COVID-19 Resurgence
Luxury Sector Remains Resilient... 3Q Earnings Growth Likely to Continue

[Asia Economy Reporter Minwoo Lee] The stock price of Shinsegae International is showing sluggish performance. Despite strong second-quarter results, the resurgence of COVID-19 due to the Delta variant and other factors has increased uncertainty around earnings.

On the 30th, KB Securities maintained its 'Buy' rating and target price of 250,000 KRW for Shinsegae International, citing these reasons. The closing price on the previous trading day was 198,000 KRW.

In the second quarter of this year, on a consolidated basis, Shinsegae International recorded sales of 340.7 billion KRW and operating profit of 26.5 billion KRW. Compared to the same period last year, sales increased by 19%, and operating loss turned into profit. The results exceeded market consensus by 5% and 65%, respectively, marking a 'surprise performance.'

Cosmetics sales grew by 45%, supported by a low base effect, with operating profit reaching 7.8 billion KRW. Imported cosmetics sales increased by 64% year-on-year to 59 billion KRW, maintaining a solid growth trend. For imported apparel, sales rose by 16% compared to the second quarter of last year, and with an increase in full-price sales, the operating profit margin improved by 9.0 percentage points to 14.5%. Domestic apparel also exceeded expectations in both sales and profit. Cost reductions such as labor cost savings and the discontinuation of Design United, along with strong online sales and the transfer effect of three high-margin overseas brands, were effective.

Nevertheless, the stock price has struggled to surpass the 200,000 KRW mark. This contrasts with the upward trend since March last year, which peaked at 238,000 KRW in May. Shin Ae Park, a researcher at KB Securities, explained, "The stock price is sluggish due to earnings uncertainty caused by the spread of variant viruses. The current price-to-earnings ratio (PER) is 17 times, limiting the potential for further decline, so a stock price rebound is expected when sector investment sentiment improves."

KB Securities expects Shinsegae International to continue strong performance in the third quarter despite the escalation of social distancing measures. On a consolidated basis, sales are projected at 357.1 billion KRW and operating profit at 19.2 billion KRW, representing increases of 7% and 175%, respectively, compared to the same period last year. Researcher Park said, "Although the recent increase in social distancing measures has somewhat negatively impacted department store visitor numbers, the luxury apparel and cosmetics sectors are expected to maintain relatively solid results. The domestic apparel and daily necessities sectors are also expected to contribute to overall profit improvement, with operating losses reduced by 3.4 billion KRW and 2.3 billion KRW year-on-year, respectively."