[Click eStock] "Hotel Shilla, Business Conditions Recovering, Earnings Improvement Expected"

[Asia Economy Reporter Son Sunhee] Hyundai Motor Securities announced on the 6th that it maintains a 'Buy' rating on Hotel Shilla and raises the target price from the previous 90,000 KRW to 110,000 KRW.

Hotel Shilla is estimated to have recorded sales of 1.4407 trillion KRW (consolidated basis) and an operating profit of 27.4 billion KRW in the fourth quarter of last year. Although these figures represent increases of 27.5% and 9.8% respectively compared to the same period last year, they slightly underperformed market expectations.

In the third quarter of last year, when China's lockdown policies due to COVID-19 continued, Hotel Shilla's profitability deteriorated as it pursued a strategy to expand its duty-free market share (M/S). This had some impact in the following fourth quarter as well, leading to a slight downward revision in profitability across segments.

However, despite this short-term reduction in profitability, Hyundai Motor Securities forecasts that, given the recent reopening of economic activities in China and the recovery of the industry, the expanded market share compared to the first half of last year will be a key point for future performance improvement.

In particular, Hotel Shilla also operates duty-free stores at overseas airports. The number of travelers at Singapore Changi Airport, where Shilla Duty Free is located, has recently recovered to about 70% of pre-COVID-19 levels. With Hong Kong and Macau airports gradually normalizing, Hotel Shilla's performance is expected to continue improving alongside the recovery of global travelers. The hotel segment is also projected to show a favorable recovery trend in performance as occupancy rates improve from the industry’s low point.

Jeong Hyejin, a researcher at Hyundai Motor Securities, said, "The recovery trend in duty-free and hotel business performance is expected to continue due to the gradual recovery of global travel demand," adding, "Despite domestic and international uncertainties, the direction of performance recovery is unlikely to be affected, so improved investment sentiment can be maintained."