As Chinese Bottegas Depart, Hotel Shilla Takes a Direct Hit... Consecutive Record Lows Set Daily

Hotel Shilla Hits Consecutive New Lows... Drops to 52,000 Won Range
Stock at Lowest Level in 7 Years
Continued Poor Performance Due to Slow Duty-Free Market Recovery
Expansion of Shareholder Returns Needed for Stock Rebound

The stock price of Hotel Shilla continues to hit new lows day after day, maintaining an unfathomable downward trend. This is due to sluggish performance as the business environment recovery is progressing slowly. Considering the business conditions, a stock price rebound is not expected to be easy, leading to opinions that expanding shareholder returns is urgently needed.

According to the Korea Exchange on the 4th, Hotel Shilla's stock price fell to 52,500 won during the previous trading day, marking a 52-week low. It has been breaking new lows continuously in recent days. The stock price dropping to the 52,000 won range is the first time since September 2017. Hotel Shilla's stock price has fallen more than 19% this year. The price, which was in the mid-60,000 won range at the beginning of the year, moved between the high 50,000 won and 60,000 won range before continuing its decline since May, reaching the 52,000 won level.

This is due to the slow recovery of the duty-free industry, which was hit hard by COVID-19. The sales from Chinese group tourists (Youke) and Chinese daigou (Daigong), who accounted for the largest share of duty-free sales, have not recovered due to factors such as the slowdown in China's economic growth, resulting in continued poor performance. Yujeong Hyun, a researcher at Daishin Securities, said, "The domestic duty-free recovery is delayed more than expected as China's economic downturn and daigou activities are recovering more slowly than anticipated." Jin Hyup Lee, a researcher at Hanwha Investment & Securities, analyzed, "Although the number of Chinese group tourists is gradually recovering, as of June, the proportion of Chinese tourists visiting Korea through group tour visas has just exceeded 10%, which does not even reach the 12% level of 2019."

Hotel Shilla's second-quarter performance this year is also expected to fall short of market expectations. According to financial information provider FnGuide, the consensus operating profit for Hotel Shilla in the second quarter of this year (average of securities firms' forecasts) is 38.5 billion won, down 42.71% compared to the same period last year. Jongryeol Park, a researcher at Heungkuk Securities, said, "Despite the solid performance in the hotel and leisure sectors, poor results are inevitable following the previous quarter due to the high base effect of the duty-free business during the same period last year."

Although performance improvement is expected in the second half of the year, expectations should be lowered. Researcher Park explained, "While the robust increase in outbound travel is maintained this year and the gradual increase in foreign inbound tourists will positively affect the growth of the duty-free sector's scale, unlike in the past, changes in foreign consumers' spending behavior and the slow recovery of Chinese inbound tourists will limit profitability improvement," adding, "A bottom-heavy performance is expected, but profit forecasts have been revised downward compared to previous projections."

Since a stock price rebound seems difficult based solely on business conditions and performance, there are opinions that expanding shareholder returns is necessary. Researcher Park pointed out, "Considering the not-low valuation level and weak business momentum, the possibility of stock price increase is very low," and added, "To revalue the stock price, expanding shareholder returns must be prioritized. Active shareholder return policies such as increasing the currently low dividend payout ratio and dividend yield efforts, as well as share buybacks, are urgently needed."