[Click eStock] "Emart Expected to Miss 4Q Operating Performance Estimates"

[Asia Economy Reporter Lee Jung-yoon] IBK Investment & Securities downgraded its investment opinion on Emart from Buy to Neutral on the 10th, anticipating that the company's Q4 operating performance will fall short of expectations. However, the target stock price was maintained at 98,000 KRW.

Emart's consolidated Q4 sales are estimated to reach 7.3121 trillion KRW, a 6.6% increase compared to the same period last year, while operating profit is expected to decline by 27.5% to 56.1 billion KRW. Emart's performance is projected to underperform expectations. Nam Seong-hyun, a researcher at IBK Investment & Securities, explained, "There is a high possibility that Starbucks' weak operating results and the reduced deficit in the online business division will fall short of initial expectations," adding, "This is due to the sluggishness caused by the Traders baseline and the expected decline in contribution following the sale of Shinsegae Shopping."

He continued, "However, in the discount store segment, profit growth is possible due to the effects of large-scale events and the World Cup event, growth in processed and instant foods, and margin improvement resulting from a decrease in contribution from existing PP centers," estimating that "discount store operating profit will grow by 21.4% year-on-year to 37.8 billion KRW."

It was explained that it is difficult to interpret the recent stock price increase positively. Despite the reduction in low-margin product categories, the decline in online transaction growth is disappointing, and uncertainties about discount store growth, reduced purchasing power due to inflation and economic slowdown, and limited increase in ordinary profit due to rising financial costs were analyzed.

The strategic shift to improve Emart's profitability is positive. However, it was evaluated as regrettable that the aggressive reestablishment of the online business model to secure mid- to long-term growth has not been realized, and that the driving force for profit growth remains profitability improvement.