[Click eStock] "Hotel Shilla, Continued Earnings Slump... Target Price ↓"

Slow Improvement Expected in Second Half Performance

Heungkuk Securities forecasted on the 2nd that Hotel Shilla's industry conditions and earnings will continue to deteriorate. Accordingly, they maintained a 'Buy' investment rating but lowered the target price to 73,000 KRW.

Jongryul Park, a researcher at Heungkuk Securities, stated, "On a consolidated basis, second-quarter sales are expected to increase by 21.9% year-on-year to 1.1 trillion KRW, while operating profit is expected to fall by 49.7% to 33.8 billion KRW," adding, "Poor performance is inevitable following the previous quarter."

In the first quarter, operating profit declined sharply compared to last year despite strong top-line growth. This was due to the deterioration of duty-free store profitability (last year's one-time gains and patent fee refunds) and weakening profitability in the hotel & leisure segment. Researcher Park analyzed that due to the high base effect from last year, the downward trend in operating profit is unavoidable through the second quarter of this year.

Although performance improvement is possible in the second half of the year, he evaluated that expectations should be lowered. Researcher Park said, "The duty-free segment recorded operating losses for three to four consecutive quarters last year, but a return to profitability is possible this year," while also diagnosing, "Unlike in the past, changes in foreign consumers' spending behavior and the slow recovery of Chinese inbound tourism will limit profitability improvements."

He added, "We revise our forecast for this year's annual sales to 4.4 trillion KRW, up 23.9% year-on-year, and operating profit to 127.4 billion KRW, up 39.7%," noting, "We expect a performance improvement pattern of weak first half and strong second half, but we are lowering profit expectations compared to previous forecasts."