[Click eStock] "Emart's 1Q Slump... E-commerce Competition Easing Signal Is Positive"

[Asia Economy Reporter Myunghwan Lee] Yuanta Securities announced on the 13th that it maintains a buy rating on Emart but lowers the target price from the previous 245,000 KRW to 190,000 KRW. This is due to poor first-quarter performance centered on subsidiaries Starbucks Korea and Gmarket.

Emart's consolidated first-quarter sales increased by 18.8% year-on-year to 7.0035 trillion KRW, while operating profit fell 72% to 34.4 billion KRW. Operating profit significantly missed the market forecast of 124.8 billion KRW, resulting in weak performance. The main factors for the poor results were the underperformance of subsidiaries Starbucks, Gmarket, and Shinsegae Property.

Starbucks saw same-store sales growth of only 5% year-on-year, and operating profit decreased by 36% compared to the previous year. The poor performance was attributed to exchange rate and coffee bean price increases, as well as sales declines in February and March when COVID-19 cases surged. Gmarket recorded an operating loss of 19.4 billion KRW, which was analyzed as a result of temporary growth stagnation during the merger and acquisition process, rising logistics costs, and active investment execution after acquisition.

Yuanta Securities' analysis indicates that the defense of gross profit margin (GPM) at discount stores and the reduction of losses at SSG.com signal a recent easing of competition in the e-commerce market. The first-quarter same-store sales growth rate for discount stores was 2.4%. Due to the surge in COVID-19 cases in February and March, the sales proportion of the Picking & Packing (PP) center sharply increased, and with the rise in commissions for SSG.com, separate operating profit decreased by 19% year-on-year. Despite a slowdown in market growth rate, SSG.com grew 23% compared to the same period last year, and its losses also decreased from the previous quarter.

Yuanta Securities expects profitability to be weaker than initially anticipated due to active investment in Gmarket, acquired last year. However, it forecasts that from the second quarter of this year, total transaction volume (GMV) growth will be achieved, leading to a reduction in losses.

Researcher Jinhyup Lee of Yuanta Securities stated, "The subsidiaries that had poor first-quarter results are expected to recover," adding, "Starbucks' underperformance is expected to be temporary, and like food and beverage operators, a leverage effect from price increases can be expected as costs stabilize."