[Click eStock] "Shinsegae Expected to Benefit from Duty-Free Market Recovery Cycle"

Shinhan Financial Investment Report

[Asia Economy Reporter Minji Lee] Shinhan Financial Investment maintained a buy rating and a target price of 350,000 KRW for Shinsegae on the 16th. Despite concerns over consumption slowdown and base effects, it is expected that solid recovery in department stores and duty-free shops will boost earnings.

Despite recent recession and concerns over consumption slowdown, department store performance has shown a favorable trend. In June and July, total department store sales growth rates recorded 16% and 22%, respectively, driven by strong demand for luxury goods and apparel. Although August was expected to be sluggish due to record heavy rains, early Chuseok (Korean Thanksgiving) led to a 28% growth, showing a healthy growth trend.

Researcher Sanghoon Cho of Shinhan Financial Investment said, “Although apparel consumption has increased significantly, there is still room for further growth compared to 2019,” adding, “The high proportion of VIP customers who are less sensitive to consumption cycles and the expected increase in earnings contribution from newly incorporated stores suggest that the current growth momentum will be maintained in the second half of this year and next year.”

Shinsegae has the largest sales area within the airport branch. It can benefit the most in the cycle where the duty-free industry recovers mainly due to outbound demand. Many countries, excluding China, are easing entry and exit restrictions, and Japan is actively considering relaxing tourism regulations, leading to a rapid recovery of high-profit FIT (Free Independent Traveler) tourists.

Researcher Cho said, “Although there are concerns about cost burdens as the rent structure, which changed to a sales-linked system in September 2020, will revert to the previous fixed-cost structure next year, the industry as a whole is avoiding bidding competition that would accept losses,” adding, “Since the airport branch business rights will also expire next year, giving Shinsegae an advantage in negotiations, concerns about cost burdens are excessive.”