[Click eStock] "Lotte Shopping Resolves Major Causes of Low PBR... Target Price Up"

Target Price Raised by 20% Compared to Previous Level

NH Investment & Securities on the 13th raised the target price for Lotte Shopping from 100,000 KRW to 120,000 KRW, expecting a valuation discount easing trend based on a turnaround to net profit after 7 years and an increase in dividends per share. The investment rating was maintained as 'Buy.'

Younghoon Joo, a researcher at NH Investment & Securities, said, "The target price for Lotte Shopping was raised by 20% compared to the previous one due to the adjustment of the applied price-to-book ratio (PBR) (from 0.26x to 0.30x). The key point is that net profit turned positive for the first time in 7 years due to earnings recovery and a reduction in non-operating issues." He added, "The expansion of shareholder returns is also positive. Overall, we believe that the reasons why the PBR had to be low until now have largely been resolved, so we expect a full-scale increase in corporate value."

Lotte Shopping turned to net profit in the fourth quarter of last year for the first time in 7 years. On a consolidated basis, Lotte Shopping recorded sales of 3.6329 trillion KRW and operating profit of 202.4 billion KRW in Q4. Although sales decreased by 4% compared to the same period last year, operating profit increased by 117.4%, exceeding market consensus (average securities firm forecast). The researcher said, "What is more encouraging is that net profit turned positive on an annual basis for the first time in 7 years," analyzing, "This is because the scale of impairment losses, including cash-generating unit (CGU) impairment, significantly decreased compared to the same period last year." The same-store sales growth rates of domestic department stores and discount stores were 2% and 1%, respectively. Although the sales growth rate itself was not high, profitability is improving faster than competitors through efficiency in selling and administrative expenses. The researcher added, "Subsidiaries also showed profitability improvements across the board except for Culture Works, with notable improvements in Hi-Mart and home shopping."

The expansion of shareholder returns is also positive. The dividend per share in 2023 was 3,800 KRW, an increase of 500 KRW compared to the previous year. The dividend yield is about 4.8%. The researcher said, "The 2024 operating profit guidance is 570 billion KRW, a 12% increase from the previous year, and since we believe there is a high possibility of exceeding this, additional increases in dividends per share based on improved earnings are expected."