'Real' Reopening Begins... Hotel Shilla Rises Further

Securities Firms Raise Target Price Expectations

[Asia Economy Reporter Minji Lee] Hotel Shilla is responding to China's reopening movement. Securities experts predict that changes in China's zero-COVID policy will reflect a genuine reopening effect on Hotel Shilla.

At 9:32 a.m. on the 8th, Hotel Shilla was traded at 77,700 KRW, down 2.0% from the previous trading day. After the stock price rose more than 20% in a month due to expectations of China's reopening, profit-taking sales emerged. However, foreigners are actively buying, currently net purchasing about 12,000 shares, and have bought a total of 64.2 billion KRW worth of shares until the previous day. It ranks third in net buying by stock.

The reason Hotel Shilla uniquely reacts to Chinese news despite major global countries reopening is that China is the most important country for the duty-free industry. Without Chinese travelers using downtown duty-free shops, the role of daigou (B2B · personal shoppers) is crucial. However, due to the zero-COVID policy causing a slowdown in Chinese consumption and the weakening yuan, profits through daigou have significantly decreased compared to before. Daol Investment & Securities researcher Daesong Lee said, "After COVID-19, the sales proportion through daigou in the duty-free market expanded to 90% (75% in 2019)," adding, "Next year, through the improvement in daigou demand, the company's operating profit margin is expected to recover." Furthermore, if the influx of Chinese travelers increases after the second half of the year, an increase in B2C sales through downtown duty-free shops is also expected.

The recovery of domestic travelers' demand for overseas travel is also positive for performance improvement. Increased airport passenger numbers are expected to boost sales in the airport sector of the duty-free industry. Third-quarter airport duty-free sales amounted to 144.5 billion KRW, a 99% increase compared to the same period last year. Eunhee Lee, a researcher at Eugene Investment & Securities, said, "With the normalization of airport passenger numbers, an increase in domestic and overseas airport duty-free sales is expected," adding, "In the hotel leisure sector, the occupancy rate has risen to the high 70% range, and high-margin events such as weddings are expanding, which is also positive."

Securities experts have already raised their performance and stock price outlooks reflecting changes in the Chinese government's quarantine policies. Daol Investment & Securities raised the target price from 90,000 KRW to 110,000 KRW, and Hana Securities also set the target price at 110,000 KRW. Samsung Securities raised its target from 88,000 KRW to 95,000 KRW. Samsung Securities projected next year's sales and operating profit at 6.2 trillion KRW and 243 billion KRW, respectively, expecting operating profit to increase by 115% year-on-year. Hana Securities estimated sales of 5.82 trillion KRW and operating profit of 231 billion KRW, forecasting increases of 16% and over 100% year-on-year, respectively.

Hyeonjeong Seo, a researcher at Hana Securities, said, "If the number of airport users recovers and the possibility of re-bidding for Incheon Airport Terminal 1 duty-free shop increases, Hotel Shilla could raise its annual sales scale by more than 500 billion KRW," adding, "Although the current price-to-earnings ratio (PER) is high at 23.3 times, considering normalization, it is only 12 times, so it would be reasonable to approach with phased buying."