Investment Rating Downgraded from 'Buy' to 'Short-term Buy'
Target Price Lowered from 86,000 Won to 72,000 Won
Shinhan Investment Corp. lowered its investment rating on Emart from 'Buy' to 'Short-term Buy (Trading Buy)' on the 17th, citing that structural earnings improvement is an urgent priority, and also cut the target price from 86,000 KRW to 72,000 KRW.
Researcher Sanghoon Cho of Shinhan Investment Corp. explained, "Concerns include the fundamental decline in the attractiveness of discount store channels, threats from C-commerce, and decreasing earnings visibility of Shinsegae Construction. For an upgrade in investment rating, offline business integration synergies need to become visible, which is expected to materialize starting in 2025, so a conservative approach is necessary for the time being." He added, "We lowered the target price due to downward revisions in earnings estimates and adjustments in target multiples."
Emart recorded an earnings surprise in the first quarter of this year with sales increasing by 1% year-on-year to 7.2 trillion KRW and operating profit soaring 245% to 47.1 billion KRW. Researcher Cho analyzed, "The core business performed significantly well, and some subsidiaries also turned around."
Separate sales were favorable due to a low base and recovery in offline customer traffic driven by increased dining-in demand, and operating profit also rose by 45%. However, it is premature to judge a structural turnaround. Researcher Cho explained, "This is because unit price decline continues despite customer traffic recovery, and April’s performance was weak again due to two fewer holidays."
Subsidiary earnings showed improvement in some areas but remained sluggish in others. Researcher Cho said, "The reduction in losses in the e-commerce business and profit increase at SCK Company are positive, but the expanded losses at Shinsegae Construction and Emart24 had a negative impact."
He emphasized that although the stock is undervalued, earnings improvement should come first. Researcher Cho pointed out, "The price-to-book ratio (PBR) based on 2024 is 0.16 times, indicating an absolute undervaluation zone, but structural earnings improvement through an increase in return on equity (ROE) is an urgent priority."
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