[Click eStock] "Emart, Profit Growth Expected to Resume from Q4"

[Asia Economy Reporter Song Hwajeong] Hanwha Investment & Securities maintained a 'Buy' rating and a target price of 220,000 KRW for Emart on the 25th, expecting short-term earnings to be sluggish but profit growth to resume from the fourth quarter.

Emart's third-quarter earnings this year are expected to fall short of market expectations. Hanwha Investment & Securities estimated Emart's third-quarter consolidated revenue to increase by 6.7% year-on-year to 6.3055 trillion KRW, while operating profit is projected to decrease by 24% to 114.9 billion KRW. Nam Seonghyun, a researcher at Hanwha Investment & Securities, analyzed, "The weaker-than-expected performance was due to sluggish sales in September despite the Chuseok holiday, a decline in profit margins caused by promotional events and campaigns, and a relative decrease in customer traffic due to disaster relief fund payments."

From the fourth quarter, consolidated earnings are likely to improve due to the inclusion and acquisition of major subsidiaries. Starbucks Korea is expected to be consolidated from the fourth quarter, and the acquisition of eBay Korea is also expected to be completed around the same time. Researcher Nam said, "Based on 2020, the combined operating profit of the two companies amounts to about 240 billion KRW," adding, "Considering that Emart's operating profit is estimated at around 336.7 billion KRW in 2021, conservatively, the operating profit growth rate for 2022 could increase by more than 60%." He added, "However, for Starbucks Korea, the actual increase in shareholding is 17.5%, and the growth rate of eBay Korea's transaction volume is stagnating, so the opportunity cost (acquisition amount and potential financial liabilities) should also be taken into account."

Although the operating environment in the fourth quarter is not expected to be favorable, profit growth is anticipated to resume. Researcher Nam said, "There is a timing difference due to the Chuseok holiday, and some unfavorable factors such as weak sales in the non-food sector and the impact of disaster relief funds remain, so it is difficult to consider the fourth-quarter operating environment as favorable," but added, "Nevertheless, positive results are expected due to market share expansion centered on fresh food, increased contribution from the PP center, and the effect of the substitute holiday in October."