[Click eStock] "Emart, Q2 Earnings Slump... Target Price Down 15%"

Daishin Securities Report

[Asia Economy Reporter Minji Lee] Daishin Securities maintained a buy rating on Emart on the 5th and set a target price of 170,000 KRW, down 15%. This is based on the expectation that earnings will be sluggish due to the seasonal off-season in the second quarter and the burden of investment costs.

Emart's total sales and operating loss for the second quarter are expected to be 7.2718 trillion KRW and 16.1 billion KRW, respectively. Sales are projected to grow 24% compared to the same period last year, but operating profit is expected to turn to a loss.

Yoo Jung-hyun, a researcher at Daishin Securities, said, "The second quarter is seasonally the slowest period, and every year the payment of comprehensive real estate tax causes operating profit to fluctuate between loss and profit. This year, however, a loss is inevitable due to transitional effects from online platform marketing competition and the acquisition of Gmarket Global."

Separately, the growth rate of existing discount stores in the second quarter is expected to increase by 4% year-on-year due to the impact of inflation. However, operating losses of 21.2 billion KRW are expected in the second quarter due to an increase in the sales proportion of the PP Center and the impact of comprehensive real estate tax.

On a consolidated basis, SSG.com’s transaction volume is estimated to increase by 20% compared to a year ago. However, due to a growth-focused strategy, an operating loss of 28 billion KRW is expected. Gmarket Global is predicted to record a loss of 18 billion KRW due to a decrease in transaction volume year-on-year caused by MD adjustments and costs incurred during logistics and PMI processes.

SCK and PK Holdings are understood to have continued a decline in profitability compared to the previous year due to rising raw material costs caused by inflation. Additionally, with the advent of the endemic, performance improvement is expected compared to the previous quarter due to increased occupancy rates at Chosun Hotel and resorts. Emart24 is also expected to maintain profitability at the break-even point (BEP) level in the second quarter, having surpassed 6,000 stores.

Researcher Yoo said, "It will be difficult for the low-margin situation to improve immediately due to investment burdens. However, given the nature of a company with a low PBR valuation, further declines in stock price are unlikely in a bearish market."