[Click eStock] "Emart, Construction Risk Resolution Needed for Stock Recovery... Target Price Down"

Korea Investment & Securities on the 22nd reported that Emart's stock price has continued to underperform due to prolonged construction risks, and thus lowered the target price from 115,000 KRW to 105,000 KRW. The investment rating was maintained at 'Buy.'

Myungjoo Kim, a researcher at Korea Investment & Securities, stated, "The recent underperformance of Emart's stock price is more due to the risk from Shinsegae Construction rather than concerns about its core business. Currently, Emart's stock price is at a historical low, and if the construction risk is resolved, the stock price can recover quickly."

Emart's fourth-quarter earnings last year are expected to fall short of market expectations. Researcher Kim explained, "Emart's consolidated sales for Q4 are expected to decrease by 0.5% year-on-year to 7.4403 trillion KRW, and operating profit is expected to increase by 63.5% to 20.9 billion KRW. While sales meet market expectations, operating profit is expected to fall short by 53.6%."

The shortfall is due to Shinsegae Construction's poor performance and continued losses in the online business. Kim estimated, "SSG.com’s operating loss is estimated at 31 billion KRW, similar to Q3 last year, and although it is difficult to predict Shinsegae Construction’s loss level, we assume it has expanded compared to 48.5 billion KRW in Q3. The discount store (separate) operating profit is expected to meet market expectations due to cost reduction effects and gross profit (GP) margin improvement despite existing store sluggishness caused by a high base."

On the 19th, Shinsegae Construction announced self-rescue measures to improve its financial structure. Going forward, Shinsegae Construction plans to issue 200 billion KRW in private bonds, which will be purchased by financial institutions and Shinsegae I&C. Researcher Kim commented, "It is unfortunate that Shinsegae Construction’s poor performance and related risks have not been completely resolved, but it is positive that Emart did not provide direct support as the market had feared."

Improvement in the core business is expected to continue unchanged. Kim said, "Emart’s core business improvement due to increased household dining at home remains unchanged this year. As of Q3 last year, the share of household food expenditure on dining at home was 50.7%, up 0.7 percentage points year-on-year and 3.1 percentage points quarter-on-quarter." Accordingly, Emart’s separate operating profit this year is expected to increase by 31.9% compared to the previous year.