[Click eStock] "Hyundai Department Store, Stock Momentum Depends on Whether Duty-Free Recovery Offsets Department Store Slowdown"

[Asia Economy Reporter Kwon Jae-hee] Hana Securities maintained its investment opinion of 'Buy' and target price of 98,000 KRW for Hyundai Department Store on the 21st.

Hana Securities forecasted that Hyundai Department Store's same-store sales growth rate in the third quarter would reach about 13% year-on-year. For July and August, the growth rate is expected to exceed 15% compared to the same period last year, while in September, due to the high base from the previous year and the difference in the Chuseok holiday period, the growth rate is expected to slow to around 8%. With all stores showing steady growth and the sales proportion of high-margin fashion and accessories categories rising, the operating profit growth rate of the department store business is expected to increase by 47% year-on-year. The Hyundai The Hyundai store is expected to continue turning a profit, and the online business is estimated to contribute to an annual profit improvement of over 10 billion KRW due to the reduction of various promotions.

The duty-free store segment is also expected to see gradual profitability improvement. The transaction amount for the duty-free business in the third quarter is projected to be about 200 billion KRW per month, approximately 10% higher than in the second quarter. The operating loss is also expected to decrease to 10 billion KRW. In the second quarter, profitability declined compared to the same period last year due to an increased proportion of domestic cosmetics sales, but the third quarter is expected to recover to a level similar to the previous year. Of the 46 targeted brand replacements, 12 have been introduced. With the resumption of global travel, this process is expected to be completed in the first half of 2023. The Incheon Airport duty-free store is generating a slight profit as the burden of rent has eased.

Jong-dae Park, a researcher at Hana Securities, said, "The department store business faces challenges such as a high base from the fourth quarter onward, a sluggish real estate market, decreased disposable income, and the possibility of increased overseas travel." He added, "However, if the slowdown in department stores is limited and the recovery of duty-free stores offsets the department store slowdown, allowing continued performance improvement, the current price-to-earnings ratio (PER) of 5.1 times will highlight a significant undervaluation merit and could form a stock price momentum."