[Click eStock] "Emart Shifts E-commerce Business Strategy... Performance Needs Monitoring"

KB Securities Report
Target Price Lowered by 13%

[Asia Economy Reporter Minji Lee] KB Securities maintained a buy rating on Emart on the 2nd and set a target price of 140,000 KRW, down 13%.

In the second quarter, consolidated net sales reached 7.1473 trillion KRW, with an operating loss of 12.2 billion KRW. Operating profit turned negative. By segment, offline discount store total sales grew by 4%, with an operating loss of 36.4 billion KRW. Same-store sales increased by 3.8%, and gross profit margin improved by 0.4 percentage points, but operating profit margin worsened by 0.6 percentage points due to increased selling and administrative expenses.

Traders' sales declined by 0.4% due to a high base effect. Operating profit decreased by 48% due to costs from opening new stores. SSG.com’s total sales grew by 13%, but it recorded an operating loss of 40.5 billion KRW. Gmarket Global posted total sales of 4.1 trillion KRW and an operating loss of 18.2 billion KRW. Starbucks sales increased by 15%, but operating profit fell by 6% due to rising costs and labor expenses.

Emart plans to shift its e-commerce business strategy from a ‘growth-centered’ approach to a ‘balanced growth supported by profitability’ starting in the second half of the year. To this end, it will integrate 18 small and medium-sized PP centers to improve logistics efficiency and avoid low-profit sales. The marketing approach will also change from discount-focused to a points accumulation system targeting membership customers.

Shinae Park, a KB Securities analyst, said, “Currently, it is the early stage of the strategy shift, and effects are expected to gradually become visible from the third quarter.” Accordingly, KB Securities lowered its total sales estimates for SSG.com for 2022?2024 by 10%, while raising operating profit estimates by more than 20 billion KRW each year.

However, it is analyzed that the stock price is unlikely to fall much further from the current level. Analyst Park said, “Since the current stock price is trading near historical lows, further declines are limited,” adding, “It is necessary to monitor the profit and loss improvement trend of the e-commerce business.”