[Click eStock] SK Networks Continues to Reduce Hotel Business Division Deficit

[Asia Economy Reporter Lee Seon-ae] Hana Securities announced on the 3rd that it maintains a buy rating and a target price of 7,200 KRW for SK Networks. This is based on the positive assessment that the deficit at Walkerhill, which was a major cause of past poor performance, has significantly decreased. The second-quarter operating results met consensus expectations. Performance improved mainly in the information and communication, rental car, and Walkerhill sectors. Based on estimated 2022 results, the price-to-earnings ratio (PER) is 14.2 times, and the price-to-book ratio (PBR) is 0.5 times.

Second-quarter sales amounted to 2.1 trillion KRW, a 15.7% decrease compared to the previous year. The main reasons were a reduction in global segment sales due to the discontinuation of the steel business and a decline in the volume of information and communication device sales. Operating profit recorded 37.7 billion KRW, a 38.9% increase year-on-year. Although the number of devices sold in the information and communication sector decreased due to supply issues, performance improved through cost efficiency. Mintit turned profitable on a quarterly basis one year after its spin-off, and an increase in purchase volume is expected in the second half through linkage with new device launches, raising expectations for positive performance.

Walkerhill showed a significant reduction in deficit due to the normalization of operations. Despite a decrease in scale in the global segment due to the discontinuation of the steel business, performance improved thanks to strong oil prices and increased demand for chemical products. SK Magic saw a margin decline due to losses in the home appliance sector caused by intensified competition and increased advertising expenses.

Meanwhile, advertising expenses are scheduled to be reduced in the second half, making it highly likely that profit improvement compared to the previous year will be observed. Pre-tax profit decreased due to the base effect of last year's gain from the sale of the Myeongdong building, despite reduced interest expenses from lower borrowings and gains from the sale of some business units. The normalization of hotel business performance confirms an annual profit improvement trend.

Yoo Jae-sun, a researcher at Hana Securities, stated, "With marketing cost efficiency in the second half, overall performance is expected to continue a stable trend, and the hotel business, which was a factor in the overall performance decline, is showing a significant reduction in deficit due to operational normalization, which is positive." He added, "Demand remains solid, and efforts to turn profitable through additional service development during the third-quarter vacation season are underway."