[Click eStock] "Shinsegae, Focus on Duty-Free Recovery Over Base Burden... Target Price Down"

Shinhan Investment Corp. on the 18th downgraded the target price for Shinsegae from 240,000 KRW to 220,000 KRW, noting that although sales sluggishness and cost increases are prolonged, attention should be paid more to duty-free recovery and valuation attractiveness rather than the base burden. The investment opinion was maintained as 'Buy.'

Researcher Sanghoon Cho of Shinhan Investment Corp. explained, "Considering the prolonged sales sluggishness and cost increases, we have lowered earnings estimates and reduced the target price by 8%. The deceleration in department store growth has already been reflected in the stock price, and attention should be paid to the expectations for duty-free recovery and valuation attractiveness."

Shinsegae's fourth-quarter results last year are expected to fall short of expectations. Researcher Cho said, "Shinsegae's Q4 sales are expected to decrease by 23.1% year-on-year to 1.7 trillion KRW, and operating profit is expected to increase by 18.8% to 168 billion KRW, which is 9% below the consensus (average securities firm forecast). Department store and Shinsegae International's profit declines continued, and duty-free was also disappointing." Despite a high base, the department store's same-store sales growth rate is expected to be favorable, but operating profit is expected to decrease by 8% due to various cost increases. Shinsegae International's operating profit is estimated to decrease by 43% due to the impact of discontinued brands. Shinsegae DF's operating profit is expected to decrease by 17% quarter-on-quarter due to a decline in the proportion of profitable individual tourists (FIT) and fixed cost burdens from increased airport store operating space.

The effect of resuming Chinese group tourism is expected to appear from the second quarter. Researcher Cho said, "From the second quarter, the entry of Chinese group tourists will gradually recover," and added, "With the Lunar New Year holiday, Korea-China air routes and group tour travel products will increase." He further added, "The average spending per group tourist is about three times that of individual tourists, which will be sufficient to dispel doubts about purchasing power, and from the second quarter, the duty-free sector will drive overall company performance."

This year, a rebound in corporate value is expected due to effects such as store renewals. Researcher Cho said, "Over the past two years, corporate value has declined due to concerns about department store peak-out (passing the high point)," and added, "From this year, a rebound is expected due to the effects of some store renewals and VIP customer attraction."