[Click eStock] "Lotte Shopping to Post Solid 2Q Results... Target Price Maintained"

[Asia Economy Reporter Myunghwan Lee] Korea Investment & Securities announced on the 27th that it maintains a buy rating and a target price of 130,000 KRW for Lotte Shopping. This is because the company is expected to deliver solid earnings in the second quarter of this year, slightly below market expectations.

Korea Investment & Securities projected Lotte Shopping's consolidated sales for the second quarter of this year to increase by 5.8% year-on-year to 4.129 trillion KRW, and operating profit to surge by 606% to 53.5 billion KRW. Although these figures are slightly below market forecasts, the core business performance is evaluated to be better than market expectations.

By sector, department stores are expected to grow by 14-15% and marts by 3-4% in the second quarter. Lotte On's deficit is anticipated to slightly increase to 47 billion KRW due to intensified competition in the online market compared to the first quarter. Operating profits of Lotte Himart and Lotte Home Shopping are estimated to decline due to decreased demand for home appliances and increased transmission fees.

Korea Investment & Securities explained that the reason for Lotte Shopping's favorable stock performance over the past month is the turnaround of Lotte Cinema and low expectations for the online channel. Lotte Cinema is presumed to be rapidly recovering since May due to the reopening of economic activities and the successive release of blockbuster films. It also forecasted that from the second quarter, the stock price drivers for Lotte Shopping will be department stores and discount stores. Along with reopening demand, the growth rate of department store and outlet stores is favorable, with Lotte Department Store having the highest proportion of outlet stores compared to competitors.

Researcher Myungjoo Kim of Korea Investment & Securities said, "It is regrettable that large deficits continue in the e-commerce sector, but since expectations for Lotte Shopping's e-commerce are very low, it will not be a factor for stock price adjustment," adding, "This year and next year, operating profit leverage will be shown with operating profit increasing more than sales."