[Click eStock] "Hotel Shilla, 3Q Earnings Expected to Fall Short of Estimates... Target Price Maintained"

Signs of Full-Scale Influx of Chinese Tourists...
Rising Purchasing Power of Chinese Consumers Remains a Variable

On the 12th, Samsung Securities forecasted that Hotel Shilla's third-quarter earnings this year would fall short of market expectations. However, they maintained a target stock price of 90,000 KRW and a buy rating.

On the same day, Samsung Securities researchers Park Eun-kyung and Han Su-jin stated, "Hotel Shilla's third-quarter sales are expected to decrease by 30% compared to the same period last year, reaching 951.4 billion KRW, while operating profit is expected to increase by 104% to 54.3 billion KRW." They analyzed that although overall sales sharply declined due to a decrease in business-to-business (B2B) transactions, operating profit could grow significantly due to increased demand from individual tourists (FIT).

However, the expected profitability of FIT in the third quarter is projected to fall short of that in the first quarter. Researcher Park said, "With a significant drop in B2B sales, competition among companies to attract FIT customers to maintain sales volume is fierce. The rising exchange rate has increased consumers' price burden, and marketing costs, including exchange rate compensation schemes to defend against demand contraction, have also risen."

Monthly demand from Chinese wholesalers appears to have bottomed out in the third quarter after hitting a plateau at the end of the first quarter and continuing to decline. Researcher Park noted, "Although Chinese consumers' purchasing power remains low, the Chinese government's shift from regulation to activation of platform companies since July is positive." Operating profit in the hotel leisure sector is expected to decrease compared to last year, as the outflow of domestic customers is faster than the inflow of foreigners.

Ultimately, whether Chinese consumers' purchasing power rises is expected to be a key variable for the stock price. Even if China resumes issuing group tourist visas to Korea in August, leading to a full-scale influx of group tourists, concerns remain that prolonged domestic sluggishness in China will weaken Chinese tourists' purchasing power compared to before. Researcher Park said, "Analysis of credit card usage during visits to Korea does not support the conclusion that Chinese consumers' purchasing power has significantly increased compared to before the COVID-19 pandemic. The full recovery of demand for Chinese group tourism is also expected to be delayed beyond initial expectations." Accordingly, they revised downward the operating profit forecasts for this year and next year by 7% each, predicting 198.1 billion KRW and 382.1 billion KRW, respectively. They added, "Since the full recovery of earnings is imminent, we maintain the target stock price."