[Click eStock] "Emart, Prolonged Subsidiary Slump... Target Price ↓"

Strengthening Core Distribution Competitiveness Late
Cost Ratio Improvement Expected After Single CEO System Implementation

Jung-gu Sunhwa-dong Emart Headquarters. Photo by Jo Yongjun jun21@

Shinhan Investment Corp. maintained a 'Buy' rating on Emart on the 15th, reflecting the prolonged poor performance of its subsidiaries, but lowered the target price to 86,000 KRW.

Researcher Sanghoon Cho of Shinhan Investment Corp. stated, "Emart posted an operating loss of 85.5 billion KRW in Q4 last year, turning to a deficit," adding, "Both the core business and subsidiaries (SSG.COM, Emart24, Shinsegae Construction) were generally disappointing."

As the market feared, both the subsidiaries and the core business underperformed. SSG.COM's operating loss expanded from 21.9 billion KRW in Q4 2022 to 38.4 billion KRW in Q4 2023. Shinsegae Construction's deficit increased to 97.5 billion KRW due to rising costs and the reflection of bad debt losses.

Strengthening competitiveness in the core distribution sector is crucial. In September last year, Emart conducted a regular executive reshuffle and transitioned its distribution business group into a single representative system. Researcher Cho noted, "Last year's organizational restructuring aimed to broaden the integrated operation areas of different distribution formats to create synergy and maximize profitability," adding, "Competitors have already swiftly pursued this, eliminating inefficiencies and improving cost ratios."

Researcher Cho analyzed, "In the long term, the strategy is to diversify sales channels for sourced products to enhance purchasing competitiveness," and "Emart's offline business integrated sales exceed 19 trillion KRW, and with already low operating profit margins, the improvement in cost ratios will significantly impact performance improvement."