[Click eStock] "BGF Retail, Need to Alleviate Market Saturation Concerns... Target Price Down"

Target Price Revised Downward by 15% Compared to Previous Level

On the 19th, KB Securities raised the target price for BGF Retail from 200,000 KRW to 170,000 KRW, stating the need to alleviate concerns about potential market saturation. The investment rating was maintained at 'Buy.'

Shinae Park, a researcher at KB Securities, explained, "The target price was lowered by 15% compared to the previous one, reflecting a downward revision of operating profit estimates for 2024, 2025, and 2026 by 9%, 4%, and 4%, respectively. As concerns about slowing growth were factored in, the stock price has been on a continuous decline since June 2023." She added, "Currently, the stock price is at a price-to-earnings ratio (PER) of about 11 times, so valuation pressure is limited. However, for a meaningful stock price rebound, market concerns about potential market saturation need to be resolved."

KB Securities lowered its annual operating profit estimate for this year by 9%, due to the underperformance of same-store sales growth at convenience stores in the first quarter compared to initial expectations. Researcher Park stated, "Reflecting the weak same-store sales growth in the first quarter, the annual same-store sales growth estimate for 2024 was lowered from 1.6% to 1.0%. Along with lowering expectations for sales growth, the annual operating profit margin estimate for this year was also revised down from 3.2% to 2.9%. The sluggish consumption environment, competition with other channels, and sales stagnation per store due to market saturation collectively had a negative impact."

Operating profit for the first quarter is expected to fall short of market expectations. Researcher Park explained, "First-quarter sales are expected to increase by 6% year-on-year to 1.9671 trillion KRW, while operating profit is expected to decrease by 9% to 33.7 billion KRW. Sales will meet consensus (average securities firm forecasts), but operating profit is expected to fall short by 12%. Same-store sales growth is expected to be somewhat weak at around 0.5%, attributed to a high base effect and unfavorable weather conditions." The operating profit margin is expected to worsen by 0.3 percentage points compared to the same period last year. Park analyzed, "The biggest factor is the weak same-store sales, along with increased rent and depreciation expenses due to the rise in headquarters-leased store openings, which negatively affected profitability."