[Click e Stocks] "Lotte Hi-Mart, Lack of New Growth Drivers... Target Price Down"

[Asia Economy Reporter Song Hwajeong] Meritz Securities on the 14th downgraded the target price of Lotte Hi-Mart from 40,000 KRW to 35,000 KRW, citing the absence of new growth drivers and the accompanying costs for promotions. The investment opinion was maintained as 'Buy.'

Lotte Hi-Mart's fourth-quarter results last year are estimated at separate basis sales of 919.8 billion KRW and operating profit of 8.3 billion KRW. This represents a decrease of 4.5% and 49.6%, respectively, compared to the same period last year. Due to the continued burden of a high base last year, the annual sales for last year are expected to decrease by 3.6%, and operating profit by 26.8% compared to the previous year. Researcher Choi Yoonhee of Meritz Securities explained, "The deterioration of the product mix led to the profit decline," adding, "Sales of white goods (washing machines, dryers, kimchi refrigerators), which have a strong high-margin nature, are understood to have shrunk double digits. The strong promotions with manufacturers last year, which had been a sales boon, acted as a base burden, and the expanded proportion of online sales is also judged to have worsened the margin." Non-operating income and expenses are also expected to be sluggish. Researcher Choi said, "Given the poor annual operating performance, there is a high possibility of goodwill impairment losses being reflected," and "This will weigh on net profit, resulting in disappointing earnings."

Short-term performance improvement is expected to be confirmed after the first quarter of this year. This is because Lotte Hi-Mart's performance momentum depends on air conditioner sales in the second quarter. Researcher Choi said, "Thanks to the low base last year, there is no significant burden on performance growth this year," but added, "However, stock price gains based on short-term performance improvement momentum are expected to be limited, and it is a crucial time for a new business model for structural growth."