[Click eStock] "Shinsegae International, Regaining Competitiveness in Cosmetics is Key"

[Asia Economy Reporter Song Hwajeong] Hana Financial Investment maintained a 'Buy' rating and a target price of 200,000 KRW for Shinsegae International on the 13th, viewing that strengthening competitiveness in the cosmetics sector will be key to stock price recovery.

Shinsegae International's fourth-quarter results last year are expected to meet market expectations. Hana Financial Investment estimated Shinsegae International's consolidated fourth-quarter sales and operating profit at 398.1 billion KRW and 26.4 billion KRW, respectively. These figures represent increases of 4% and 52% compared to the same period last year. Seo Hyunjung, a researcher at Hana Financial Investment, explained, "While strong demand for overseas brands continues, overseas fashion sales are expected to grow by 13%, whereas domestic fashion sales will remain at 4% growth. Cosmetics sales are projected to decline by 10%, with operating profit decreasing by 21% to 7.9 billion KRW. Imported cosmetics sales are expected to show a steady 9% growth, but sales of in-house brands such as Vidi Vici are estimated to drop by 46%." Sales in the daily necessities sector are expected to grow by 10%, but operating losses are likely to continue.

Although the deficit in domestic fashion and daily necessities sectors is expected to narrow compared to the previous quarter, improving profitability, concerns remain over the cosmetics sector, which poses a risk to earnings. Researcher Seo said, "Vidi Vici's poor performance continues, and the business environment in China is also challenging. With Vidi Vici's sales declining and the growth of new brands slow, the key issue is whether the competitiveness of the cosmetics business, which led market trends in 2018-2019, can be restored."

This year, losses in domestic fashion and daily necessities sectors are expected to shrink through efficiency improvements. On the other hand, overseas fashion sales base will increase from this year, but operating profit is forecasted to decline by 10%. Strengthening competitiveness in the cosmetics sector is necessary for stock price recovery. Researcher Seo stated, "The current stock price's 12-month forward price-to-earnings ratio (PER) is 10.6 times, limiting further downside potential, but stock price momentum will remain weak until uncertainties in the cosmetics sector are resolved."