[Click eStock] "BGF Retail, Convenience Store Market Appeal Declines... Target Price Down 14.3%"

Retail Industry, Especially Convenience Store Channel, Sees Significant Decline in Appeal
Q1 Operating Profit Expected to Fall Short of Estimates...Profit Margin Improvement Also Challenging
Market Restructuring Trends Positive with Decrease in Lower-Tier Store Numbers

Korea Investment & Securities maintained its investment opinion as 'Buy' on BGF Retail on the 26th, but lowered the target price by 14.3% from the previous 210,000 KRW to 180,000 KRW, considering the decline in convenience store market share within the retail market.

Myungjoo Kim and Yewon Jeon, researchers at Korea Investment & Securities, stated, "Considering the recent unfavorable supply and demand flow in the consumer goods sector, a rapid stock price increase is expected to be difficult," adding, "It is positive that market restructuring has begun, such as the decrease in the number of stores of lower-tier operators within the convenience store industry since the second half of last year."

BGF Retail's sales for the first quarter of 2024 are expected to be 1.989 trillion KRW, with an operating profit of 35.8 billion KRW. While sales are in line with market expectations, operating profit is forecasted to fall short of market expectations by 11.1%. The two researchers explained, "The reason the performance does not meet market expectations is that despite relatively favorable weather conditions in January and February compared to previous years, the increase in overseas travel by domestic consumers led to a decrease in floating population, resulting in a slower recovery of BGF Retail's same-store sales." Same-store sales growth for BGF Retail in the first quarter is estimated to be around 1.0 to 1.5%. Improvement in product profit margin due to sales of high-margin products is also unlikely.

Since the beginning of 2023, BGF Retail's stock price has continuously declined. The reason for the stock price drop is that the attractiveness of the distribution industry declined compared to the consumer goods sector, and within the distribution industry, the attractiveness of the convenience store channel fell significantly. The convenience store channel's market share in the retail market was 6.6% in 2022 but dropped to 6.2% in 2023. Researchers Myungjoo Kim and Yewon Jeon said, "Despite the net increase in stores by top-tier operators, the number of stores of lower-tier operators continues to decrease," adding, "Meaningful recovery of the convenience store channel's market share within the retail market is expected to be difficult this year."