[Click eStock] Hotel Shilla Remains Strong in Off-Season... 3Q Operating Profit Expected at 48.2 Billion Won

Airport Duty-Free Store Rent Risk Zero... Positive Cooperation with Chinese Duty-Free Stores

Shilla Duty Free Seoul Branch (= Provided by Hotel Shilla)

[Asia Economy Reporter Minwoo Lee] Hotel Shilla is evaluated to have performed well in the third quarter of this year, achieving results similar to the previous quarter despite the low season for duty-free shops.

On the 6th, NH Investment & Securities forecasted that Hotel Shilla would record consolidated sales of 971 billion KRW and an operating profit of 48.2 billion KRW in the third quarter of this year. Compared to the same period last year, sales are expected to increase by 10%, and the operating loss is expected to turn into a profit. Although the main revenue source, duty-free shops, was in the seasonal low period during July and August, sales and operating profit are estimated to increase by 1.85% and 3.88%, respectively, compared to the previous quarter.

Specifically, the duty-free sector is expected to have sales of 844.7 billion KRW and an operating profit of 49 billion KRW. Sales are projected to rise by 10% compared to the same period last year, and the operating loss is expected to turn into a profit. Researcher Younghoon Joo of NH Investment & Securities explained, "Although the proportion of domestic cosmetics slightly increased, the overall cost structure, including commission fees, has not changed, so profitability is expected to be similar. Since June, the sales proportion of high-margin small and medium-sized resellers has been steadily maintained at over 50%, which is a meaningful factor in terms of improving the customer mix."

In particular, Hotel Shilla's low risk is evaluated as a strength compared to other duty-free shops. Unlike competitors whose profit and loss estimates for next year could significantly change depending on the extension and condition changes of airport duty-free shop rent reduction policies, Hotel Shilla has already ended operations in the existing Incheon Airport T1, DF3, and DF4 zones. Therefore, there is no related risk.

The strategic business agreement (MOU) with Hainan Haikou Duty-Free Shop (HTDF) in China is also anticipated. Researcher Joo analyzed, "Although specific business promotion plans have not been announced, it is meaningful in terms of cooperation with the Hainan duty-free shop, which was considered a risk factor."

Meanwhile, the hotel sector is forecasted to have sales of 126.3 billion KRW and an operating loss of 800 million KRW. Sales are expected to increase by 16% compared to the same period last year, and the scale of operating loss is expected to decrease. This is interpreted as domestic travel demand being stably maintained despite the implementation of the social distancing level 4.