[Click eStock] "Hotel Shilla, Reopening Effect Becomes Visible"... Target Price Upward Revision

[Asia Economy Reporter Lee Jung-yoon] Shinhan Investment Corp. maintained its buy rating on Hotel Shilla on the 30th, citing increased bargaining power due to the reopening and the market dominance expansion strategy implemented in the third quarter of last year, and shifted to a profitability-focused strategy this year, raising the target price by 6% to 95,000 KRW.

Hotel Shilla's consolidated sales for the fourth quarter of last year increased by 15.1% year-on-year to 1.3 trillion KRW, while operating loss turned to a deficit of 6.7 billion KRW, falling short of consensus estimates. Similar to the previous quarter, the hotel and leisure business performed well, but the duty-free segment was sluggish.

The duty-free segment saw a 13% increase in sales due to airport store traffic recovery and the effect of China's Guanggun Festival, despite the business environment being largely unchanged from the third quarter of last year. However, a sharp drop in the KRW-USD exchange rate caused a temporary rise in cost ratio, and the setting of provisions for commission fees led to operating losses. The previously rising trend in brokerage commissions and promotional expenses slightly improved compared to the previous quarter, which is viewed positively.

The hotel and leisure segment, except for the Jeju branch, saw a significant increase in operating profit due to sustained high OCC (Occupancy Rate) and ADR (Average Daily Rate) effects.

Researcher Cho Sang-hoon of Shinhan Investment Corp. explained, "Since the end of last year, global travel has resumed, and China's zero-COVID-19 policy is in its final stages," adding, "Improvement in domestic store performance is expected due to inbound foreign tourists, and overseas airport store performance is expected to improve due to increased global traffic."

He continued, "Especially, benefits are expected from changes in customer composition. After the THAAD issue in 2017 and COVID-19 in 2020, dependence on daigong (individual cross-border shoppers) increased, intensifying competition," and said, "From the second quarter of this year, FIT (Free Independent Traveler) arrivals, which do not require brokerage commissions, will be in full swing, and if they concentrate on downtown duty-free stores, profitability will recover sharply."

Researcher Cho also added, "We believe that the bidding conditions for selecting the Incheon Airport duty-free store operator have been set favorably for duty-free operators," noting, "With reduced rent burdens, longer contract periods, and integrated business rights adjustments, uncontrollable risk factors for duty-free operators are decreasing, and rather, bargaining power with brand companies can be enhanced, which is positive."