[Click eStock] Shinsegae Inter, Increased Investment Spending Despite Strong Growth in Overseas Fashion... Target Price Down

[Asia Economy Reporter Kwon Jaehee] Shinhan Investment Corp. maintained its 'Buy' rating on Shinsegae International on the 9th but lowered the target price from 40,000 KRW to 36,000 KRW.

Shinsegae International's consolidated sales for the third quarter reached 387.5 billion KRW, and operating profit was 24.2 billion KRW, representing increases of 10.6% and 71.6% respectively compared to the same period last year. Both sales and operating profit met market expectations. Initially, the market expected greater profit growth from Shinsegae International's sales increase, but it appears that costs related to new brand launches were significant.

By business segment, overseas fashion showed remarkable growth. Overseas fashion increased by 18% year-on-year, driving overall company performance growth. The margin rate in imported overseas fashion is understood to be continuously improving. However, the in-house fashion segment grew by only 4% during the same period, and lifestyle sales also grew by just 4%. Cosmetics sales increased by 14%, with imported cosmetics accounting for 74% of sales, showing stronger growth compared to brands like Vidivici and Yeonjak. Vidivici is also understood to be recovering sales progressively from the first quarter to the third quarter this year.

So far, the growth of imported overseas fashion brands remains strong. However, the relatively weak sales growth of in-house brands such as Yeonjak in cosmetics is a disappointing aspect. While imported cosmetics have a margin of over 15%, the margin for in-house cosmetics brands is not favorable, resulting in slower-than-expected improvement in cosmetics profits. Additional launches of new cosmetics and fashion brands are scheduled for the fourth quarter, so cost burdens similar to those in the third quarter are expected to continue for now.

Park Hyunjin, a researcher at Shinhan Investment Corp., analyzed, "Imported fashion is leading growth, but as investments for future growth are concentrated, profit expectations have somewhat lowered. Therefore, although the target price has been lowered, the current valuation is low, so the downside risk for the stock price is considered limited."