[Click eStock] "BGF Retail, Structural Growth Potential ↑ Despite Base Concerns"

[Asia Economy Reporter Kwon Jaehee] IBK Investment & Securities maintained a 'Buy' rating on BGF Retail on the 22nd, setting a target price of 220,000 KRW.

IBK Investment & Securities stated that despite significant concerns about BGF Retail's base this year, attention should be focused on the potential for structural profit growth.

Nam Seonghyun, a researcher at IBK Investment & Securities, said, "Concerns about the base stem from the fact that BGF Retail's exceptional profits from diagnostic kit sales last year were partially reflected, and the burden from last year's high operating performance also plays a role. However, rather than the burden from the base, attention should be paid to the possibility of structural fundamental improvements in BGF Retail."

The reasons for expecting BGF Retail's performance growth this year include an increase in commission rates due to a higher ratio of headquarters-leased stores, growth potential through new store openings, growth in HMR and meal kit product lines, margin expansion due to a decrease in the tobacco proportion, and increased traffic resulting from the growing proportion of one- to two-person households.

BGF Retail has aggressively expanded the proportion of headquarters-leased stores since 2019. The results of this strategy are currently emerging and are considered factors that can further increase BGF Retail's market share and profitability in the future. The rationale includes the ability to stably maintain top-location stores in the mid to long term, the possibility of expanding profit contribution due to increased franchise commission rates, and the expectation of operating profit growth when depreciation expenses are completed in certain areas. In 2022, depreciation expenses on right-of-use assets were approximately 250 billion KRW, with total depreciation expenses reaching 160 billion KRW. Considering the increase in depreciation expenses due to headquarters-lease investments and the actual operating flow, it is judged that BGF Retail's fundamentals are further strengthening.

Researcher Nam said, "Favorable business conditions will continue this year as well," adding, "Although there is a high base from last year, we maintain a positive view because both demand and supply are favorable."