[Into the Stocks] Hotel Shilla Stock Price Blocked by China Lockdown

Expected Reopening Boost
Hit by China's Zero-COVID Policy
Experts Advise Long-Term Perspective

[Image source=AP Yonhap News]

[Asia Economy Reporter Lee Jung-yoon] The stock price of Hotel Shilla, which was expected to benefit from the reopening, remains sluggish. Despite expectations fueled by the easing of quarantine measures and the endemic (periodic outbreak of infectious diseases), it was hit by China's 'Zero COVID' policy.

According to the Korea Exchange on the 21st, Hotel Shilla closed at 83,000 KRW, down 0.72% from the previous day. Earlier this month, the stock rose to 85,100 KRW on the 6th and increased by 2.32% on the 18th, influenced by the removal of restrictions on private gatherings and business hours, but then showed a decline for two consecutive days.

Hotel Shilla, considered a representative reopening stock, was expected to benefit from an increase in domestic and international customers, including those from China, after the endemic phase. However, the variable of China's lockdown policy emerged. About 80% of Hotel Shilla's total sales come from domestic duty-free shops, and when combined with overseas duty-free shops, sales through duty-free account for approximately 88%. On the other hand, the combined sales proportion of hotels and leisure is slightly above 10%. Given the high sales proportion through duty-free, China's lockdown policy dealt a direct blow to Hotel Shilla. Although there were predictions that the lockdown would be lifted after March this year, it is still ongoing. Lockdowns continue in places such as Shanghai, Liaoning Province's Shenyang City, and Jilin Province's Changchun, leading to public dissatisfaction.

Due to the impact of these lockdown policies, there are analyses that Hotel Shilla's first-quarter performance outlook for this year is not very bright. KB Securities forecasts consolidated sales for the first quarter of this year to increase by 32% year-on-year to 957.8 billion KRW, while operating profit is expected to decrease by 32% to 18.1 billion KRW. The operating profit is 24% below the consensus estimate. In particular, downtown duty-free shops are expected to see a 71% year-on-year drop in first-quarter operating profit to 9.8 billion KRW, indicating poor performance. Yuanta Securities also projects Hotel Shilla's first-quarter operating profit to be 13.1 billion KRW, below the estimate of 24.4 billion KRW.

Experts advise approaching Hotel Shilla from a long-term perspective rather than a short-term one. It is expected that free movement with China will only be possible after June this year. Lee Hae-ni, a researcher at Eugene Investment & Securities, explained, "Due to cost issues, currently only large-sized Daigong (Chinese traders) are coming in, and sales are generated mainly around them," adding, "Compared to small and medium-sized Daigong, the commission that must be returned to them is high, resulting in lower profitability." She continued, "It is expected that from June to August this year, small and medium-sized Daigong and individual tourists will enter the country, increasing duty-free sales," and advised, "It is better to approach this on an annual basis rather than short-term."