[Click eStock] "Shinsegae Inter, Continued Earnings Benefit This Year from Strong Apparel Consumption"

[Asia Economy Reporter Kwon Jaehee] KB Securities maintained its 'Buy' rating on Shinsegae International on the 16th and raised the target price by 18% to 45,000 KRW. This outlook is based on the expectation that the company will continue to benefit from a strong clothing consumption trend this year.

Shinsegae International reported consolidated sales of 352.2 billion KRW and operating profit of 33.1 billion KRW in the first quarter of this year. These figures represent increases of 3% and 56%, respectively, compared to the same period last year. While sales fell short of market expectations by 2%, operating profit exceeded expectations by 36%, resulting in an 'earnings surprise.'

By business segment, cosmetics sales are estimated to have declined by around 20%, with operating profit decreasing by about 40%. Imported clothing sales and operating profit grew by approximately 20% and 80%, respectively, significantly contributing to the company's overall profit growth. Domestic clothing sales fell by about 3%, but operating profit is estimated to have been around 7 billion KRW. Household goods sales grew by about 5%, and operating losses are estimated to have narrowed compared to the same period last year. The Swiss subsidiary recorded sales of 3 billion KRW and operating profit of 1.6 billion KRW.

Shinsegae International's consolidated sales for this year are projected at 1.5199 trillion KRW, with operating profit expected to reach 119.2 billion KRW. These figures represent increases of 5% and 30%, respectively, compared to the previous year. Although the cosmetics segment is expected to remain weak this year, margins in all other business segments are anticipated to improve compared to last year.

Researcher Park Shinae of KB Securities analyzed, "We initially expected the profit growth in the imported clothing segment to slow down this year due to a high base effect, but contrary to our original estimate, strong growth continues this year as well."

Sales and operating profit in the imported clothing segment are expected to grow by 18% and 33%, respectively, this year. Additionally, the operating profit margin for domestic clothing is also expected to improve by 3.1 percentage points compared to last year, with most of the increase in consolidated operating profit this year likely to come from margin improvements in domestic and imported clothing.

Researcher Park forecasted, "If the reopening accelerates in the future, consumption may shift from domestic to overseas markets, potentially slowing the current explosive growth. However, solid earnings benefits based on strong clothing consumption trends are expected through the end of 2022."