[Click eStock] "Shinsegae International Lowers Profit Estimates... Target Price Down 11%"

Korea Investment & Securities Report

[Asia Economy Reporter Minji Lee] Korea Investment & Securities maintained a buy rating on Shinsegae International on the 20th and lowered the target price by 11% from the previous to 250,000 KRW. This is due to the downward revision of operating profit estimates for this year and next year.

The company's third-quarter sales are expected to reach 356 billion KRW, and operating profit 18 billion KRW, an increase of 7% and 155% respectively compared to the same period last year. The operating profit is expected to align with the lowered forecast. Overseas fashion and imported cosmetics are expected to deliver solid results, but domestic fashion and Bidivici are likely to underperform.

Domestic fashion is expected to record an operating loss of 3 billion KRW due to a sluggish women's wear market and reduced Days volume for Emart. Lifestyle sales are expected to increase by 8% year-on-year, but due to one-time recovery costs from store closures, an operating loss of 1 billion KRW is anticipated. Cosmetic sales are expected to increase by only 3% compared to a year ago. Imported cosmetics are projected to increase by 44%, while own-brand sales are expected to decline by 43%.

Department store sales in July and August showed stark differences by segment, increasing by 8% and 13% respectively compared to the same period last year. This is the result of a significant increase in luxury sales year-on-year, and with the continued favorable market conditions, the company's overseas fashion operating profit is expected to reach 14 billion KRW. Park Hakyeong, a researcher at Korea Investment & Securities, said, “General apparel sales decreased by 3% in July and were similar to last year in August,” adding, “While sales trends for luxury and general apparel diverge sharply, the company will respond to market changes by strengthening its overseas fashion lineup and restructuring its domestic fashion division.”

Korea Investment & Securities lowered Shinsegae International’s operating profit estimates for this year and next year by 12% and 8%, respectively, and reduced the contribution of cosmetics profit from 50% to 35%, lowering the target PER (price-earnings ratio) from 24 times to 20 times. Although the recent stock price decline has widened due to the lowered earnings outlook, the stock price is expected to rebound with the clothing peak season in Q4, cosmetics peak seasons such as the Singles' Day, high growth in overseas fashion and cosmetics, and normalization of domestic fashion. Researcher Park analyzed, “Overseas fashion has secured the portfolio best suited for value consumption by the MZ generation, and domestic fashion is reducing costs through restructuring,” adding, “Bidivici is underperforming, but the newly acquired Swiss Perfection is accelerating its entry into China, with department store openings planned for Q4 and Hainan duty-free store entry scheduled for next year.”