[Click eStock] "Hyundai Department Store, Poor Performance... Target Price Down"

[Asia Economy Reporter Son Sunhee] Korea Investment & Securities maintained a 'Buy' rating on Hyundai Department Store on the 16th but sharply lowered the target price from 110,000 KRW to 90,000 KRW. This decision was based on the judgment that the downside rigidity of the stock price is high due to poor earnings and uncertainties in the duty-free industry.

Hyundai Department Store's sales in the fourth quarter of last year are estimated to have increased by 43.2% year-on-year to 1.5761 trillion KRW, and operating profit is estimated to have risen by 2.2% to 96.3 billion KRW. While sales exceeded market expectations, operating profit fell short of expectations.

The reason operating profit underperformed market forecasts is due to poor performance in both the department store and duty-free sectors. The department store segment is estimated to have slightly increased by 0.7% year-on-year to 104.1 billion KRW, affected by the fire at Daejeon Hyundai Premium Outlet in September last year and weak clothing sales in the fourth quarter.

In the duty-free sector, which has been struggling since the COVID-19 pandemic, Hyundai Department Store is expected to record a loss of 24.3 billion KRW, expanding from the 15 billion KRW loss in the third quarter, as it conducted aggressive discounting. Doubts remain about the synergy with the mattress company 'Zinus,' which Hyundai Department Store acquired.

However, it was emphasized that the poor performance in the department store segment has largely been reflected in the stock price already, so attention should be paid to the improvement of the duty-free industry's business conditions going forward. Kim Myungjoo, a researcher at Korea Investment & Securities, said, "Uncertainties in the duty-free industry still exist, such as the temporary suspension of visa issuance between Korea and China and the Customs Service's redefinition of passenger commission regulations," but added, "If normal life is fully restored in China, the increase in Chinese consumers' demand for cosmetics and the improvement of the duty-free industry's business conditions are certain." He continued, "In the case of Hyundai Department Store, since the duty-free store has been recording losses since its opening, expectations for earnings are very low."