[Click eStock] "Hotel Shilla, This Is the Bottom for Now... Target Price Down 10%"

Daishin Securities Report

[Asia Economy Reporter Minji Lee] Daishin Securities maintained its buy rating on Hotel Shilla on the 1st but lowered the target price by 10% to 90,000 KRW. This is based on the analysis that demand from daigongs has not recovered as quickly as expected due to lockdowns in major Chinese cities.

In the second quarter, Hotel Shilla recorded sales of 1.1659 trillion KRW, a 22% increase compared to last year. Operating profit was 43.2 billion KRW, down 7%. The duty-free (TR) division posted an operating profit of 15 billion KRW, a 68% decrease year-on-year. The operating profit margin was also 1.5%. Researcher Jeonghyun Yoo of Daishin Securities explained, "Sales from Chinese peddlers, which were expected to improve after the Beijing Olympics, continued to be sluggish due to the impact of lockdowns."

The hotel and leisure division recorded an operating profit of 28 billion KRW, turning to black. This was largely due to a one-time gain of over 10 billion KRW from entrusted hotel-related development projects. The increase in occupancy rates at hotels in Seoul and Jeju due to the endemic transition was also positive.

Hotel Shilla is expected to face a sluggish operating environment in the third quarter as well. Since the recovery of daigong demand is not yet noticeable, the duty-free division's downturn is expected to continue. Researcher Yoo said, "Although domestic demand recovery is expected, considering the high exchange rate environment and slower-than-expected travel demand recovery, it will take time for a full-scale performance improvement."

He added, "The stock price already reflects a significant portion of the negative market conditions," and "Since there is a possibility that overseas travel demand will recover again, the buy rating is maintained."