[Click eStock] "Hotel Shilla, Increased Foreign Arrivals Boost Negotiation Power... Top Pick"

On the 8th, SK Securities issued a 'Buy' rating and set a target price of 110,000 KRW for Hotel Shilla.

Hotel Shilla reported Q1 earnings of this year with sales of 752.1 billion KRW and operating profit of 34.5 billion KRW. During the negotiation process for Daigong and commission fees, downtown duty-free store sales decreased by 62.7% compared to the previous year. Duty-free store operating profit recorded 25.2 billion KRW, an increase of 98.4% year-on-year. Of this, 13 billion KRW was due to effects such as patent fee reductions, and the actual profit margin improvement is estimated to be 3 percentage points compared to the previous quarter. The commission fee rate was adjusted to a mid-single digit level compared to the previous quarter. Going forward, with the increase in foreign arrivals, Hotel Shilla's bargaining power is expected to rise, enabling a larger adjustment in commission rates.

However, recovery to the pre-COVID-19 level of 2019 needs to be observed until Q2 of next year. Supply chain issues are expected to act as bottlenecks. Nonetheless, there are positive aspects for the duty-free industry, such as the increase in the duty-free allowance for domestic arrivals from the previous 600 USD to 800 USD during the COVID-19 period. Hotel Shilla secured long-term business advantages through external expansion by being finally selected as an airport duty-free operator for DF1 (perfume, cosmetics, liquor, tobacco) and DF3 (fashion, boutique).

Park Chansol, a researcher at SK Securities, analyzed, "Among domestic retail sectors, Hotel Shilla, which has the highest exposure to overseas travel-related businesses, will see profitability recover from 2023," and added, "With the increase in foreign arrivals, Hotel Shilla's bargaining power regarding commission fees is structured to rise, making it the top pick in the duty-free sector this year."