[Click eStock] "BGF Retail, Stock Price Decline Inevitable Due to Poor Earnings... Target Price Down"

Target Price Revised Downward by 8.3% Compared to Previous Estimate

Korea Investment & Securities on the 3rd downgraded the target price of BGF Retail from KRW 180,000 to KRW 165,000, viewing a stock price decline as inevitable due to poor earnings performance. The investment opinion was maintained as 'Buy.'

Myungjoo Kim, a researcher at Korea Investment & Securities, stated, "Considering the slower-than-expected recovery in same-store sales growth and increased judgment costs, we have lowered the net profit forecasts for 2024 and 2025 by 5.5% and 5.9%, respectively." He explained, "Since BGF Retail's operating profit has decreased year-on-year for three consecutive quarters, the decline in convenience store channel market share within the retail market will be more prominent than the restructuring of the convenience store market centered on top operators for the time being." He added, "Given the recent unfavorable supply and demand trends for consumer goods, a stock price decline due to earnings disappointment is inevitable."

BGF Retail recorded sales of KRW 1,953.8 billion in the first quarter of this year, up 5.6% year-on-year, and operating profit of KRW 32.6 billion, down 11.9%. Researcher Kim analyzed, "Sales met market expectations, but operating profit fell short by 10.9%. The main cause of the poor performance was the very sluggish same-store sales growth; the first quarter same-store sales growth, which was expected to be around 1.0-1.5%, was only 0.6%." The increase in headquarters-leased stores also affected the poor performance. Kim said, "BGF Retail started opening stores mainly under headquarters lease from 2021, and currently, the proportion of headquarters-leased stores accounts for the high 40% range of total stores. The increase in headquarters-leased stores led to fixed cost burdens, and combined with sluggish same-store sales growth, operating profit declined."

Although the stock price rebounded in the past month, it has significantly declined compared to early last year. BGF Retail's stock price fell 36.8% compared to early last year. During the same period, the KOSPI rose 20%. Researcher Kim pointed out, "The reason for the stock price decline is that the convenience store channel's market share within the distribution industry is decreasing." He noted, "The convenience store channel's market share in the retail market (excluding duty-free, passenger cars, and fuel retail industries) was 6.6% in 2022 but recorded about 6.2% last year."

The recovery of convenience store market share is expected to be difficult. Researcher Kim said, "Considering that other distribution channels are showing favorable sales trends compared to market concerns, meaningful recovery of the convenience store channel's market share within the retail market this year is judged to be difficult, and this trend is negative for BGF Retail."