[Click eStock] "Shinsegae, Strong 1Q Department Store and Duty-Free Shop Performance Expected"

NH Investment & Securities maintained a buy rating and a target price of 300,000 KRW for Shinsegae on the 3rd, projecting a favorable earnings trend contrary to concerns.

The stock price declined due to overlapping concerns about a peak-out in department store earnings caused by economic slowdown and short-term earnings weakness in duty-free shops due to adjustments in brokerage commissions. However, based on trends up to last month, there is a significant gap between market concerns and actual earnings. Younghoon Joo, a researcher at NH Investment & Securities, explained, "Department stores have continued their same-store sales growth on a cumulative basis from January to February," adding, "Although duty-free shop sales decreased in the first quarter of this year, the increase in the proportion of FIT (Free Independent Traveler) sales with higher margins and the refund issue related to license fees suggest a high possibility of operating profit turning positive."

He continued, "Since both department stores and duty-free shops are in good condition, it is considered possible to engage in bottom-fishing purchases at the current stock price level."

For the first quarter of this year, Shinsegae's consolidated net sales are forecasted to decrease by 9% year-on-year to 1.6133 trillion KRW, while operating profit is expected to increase by 7% to 175 billion KRW. Consolidated sales are expected to decline due to adjustments in brokerage commissions related to duty-free shop daigou sales, but operating profit is analyzed to remain favorable.

The same-store sales growth rate for department stores in the first quarter is projected to be around 5%. January sales were weak due to differences in Lunar New Year holiday closures, but sales rebounded last month. Compared to the average year, colder weather and the relaxation of the indoor mask mandate policy from January 30 have likely led to a renewed increase in sales of high-margin clothing.

For duty-free shops, net sales are forecasted to decrease by 27% year-on-year to 563.6 billion KRW, while operating profit is expected to turn positive to 13.5 billion KRW. Although daigou-related sales have significantly decreased, their impact on profit and loss is limited due to a 0% margin. This is because the proportion of FIT sales is rapidly increasing, and additionally, a refund effect is expected following the confirmation of a 50% reduction policy on license fees.