[Click eStock] "Shinsegae International Expected to Turn to Growth... 'Buy'"

Investment Rating 'Buy', New Target Price Set at 21,000 KRW

Hanwha Investment & Securities on the 19th forecasted that Shinsegae International's performance will shift to a growth trend this year, issuing a new 'Buy' investment opinion and a target price of 21,000 KRW.

Lee Jin-hyeop, a researcher at Hanwha Investment & Securities, explained, "The target price is based on the 2024 net income attributable to controlling interests forecast of 64.8 billion KRW, applying a target price-to-earnings ratio (PER) of 12 times. Considering the strong competitiveness in overseas product sourcing, a 30% premium was applied to the target PER for the fashion and overseas cosmetics distribution business compared to the industry target PER."

Although performance declined last year due to brand departures, it is expected to turn to a growth trend this year. The researcher said, "Last year's performance decline was inevitable due to the departure of the Celine brand, which accounted for about 170 billion KRW in annual sales, but the impact has essentially been concluded. Growth is expected to resume with the addition of 4 new overseas fashion brands and 3 to 4 new cosmetic brands." He added, "The demand expansion trend for remaining overseas brands continues, and a mid-teens growth rate of around 10% is expected."

This year's performance is expected to show a low start and strong finish pattern. The researcher forecasted, "Shinsegae International's sales this year are expected to increase by 5% year-on-year to 1.4224 trillion KRW, and operating profit is projected to rise by 32% to 64.2 billion KRW. As consumer spending capacity is expected to expand in the second half due to entering a disinflation phase, the performance will likely follow a low start and strong finish."

Attention should be paid to the turnaround in manufacturing cosmetics. The researcher explained, "Shinsegae International's valuation has derated from a PER of about 25 times in 2019 to around 9 times currently. While factors such as a sluggish consumer economy and the departure of big brands like Celine have had an impact, the biggest reason is believed to be the reduced sales proportion of the manufacturing cosmetics segment led by VDL." Manufacturing cosmetics sales are expected to rebound this year, increasing by 9% year-on-year to 85.8 billion KRW. He added, "Chinese cosmetics consumption is bottoming out and turning around, and while the sales proportion of the existing core brand VDL is shrinking, the sales proportion is expanding due to growth in new brands such as Yeonjak and Swiss Perfection. The value of manufacturing cosmetics brands determines Shinsegae International's valuation, so it is necessary to pay attention to the future turnaround trend."