[Click eStock] "Shinsegae, Q3 Earnings Expected to Bottom Out... Target Price Down"

Target Price Revised Downward by 15% Compared to Previous Estimate

Daishin Securities lowered the target price for Shinsegae from 260,000 KRW to 220,000 KRW on the 8th, viewing the third quarter of this year as the performance bottom. The investment rating was maintained as 'Buy.'

Yoo Jeong-hyun, a researcher at Daishin Securities, explained, "The target price was lowered by 15% compared to the previous one due to the downward revision of earnings for 2024-2025. The main reason for the performance deterioration was the decrease in operating profit caused by the slowdown in growth in the department store sector, which contributes the most to profits. However, since the base burden for duty-free shops and Shinsegae International will disappear from the second half of the year, the visibility of performance improvement will become prominent after the third quarter."

Shinsegae recorded consolidated total sales of 2.7824 trillion KRW and operating profit of 117.5 billion KRW in the second quarter. These figures represent decreases of 25% and 22%, respectively, compared to the same period last year. Researcher Yoo analyzed, "The same-store sales growth rate of department stores in the second quarter was 2.6%, but most major categories such as luxury goods and fashion experienced negative growth. Living and electronics sectors performed well with high growth rates of 8% and 11%, respectively, but contributed little to profits due to low-margin products. Despite efforts to reduce promotional expenses amid slowing sales growth, operating profit decreased by 11% due to increased costs such as labor, utilities, and depreciation." Shinsegae DF saw a slight improvement in daily sales at downtown stores to 8.7-8.8 billion KRW compared to the same period last year, but sales grew by only 2% due to a reduction in airport store operating area. However, operating profit declined significantly due to the accounting treatment of airport rent. Shinsegae International's operating profit fell by 28% due to sluggish fashion sales. Central City continued to improve profitability as rent increased with sales growth at Shinsegae Gangnam branch.

There is an opinion that the risk of further stock price decline is limited. Researcher Yoo said, "Even if a sharp improvement in profits is not expected immediately, the stock price has sufficiently reflected the poor performance, and considering that Shinsegae is currently conducting share buybacks this year, the risk of further stock price decline is judged to be limited."