[Click eStock] "BGF Retail, Overcoming Downtrend and Turning to Growth... Target Price Maintained"

Improved Profitability through Product Margin Enhancement and Slowed Cost Increase
Positive Signals from Existing Store Growth Rate and Quarterly Improvement Trends

Hana Securities analyzed on the 11th that BGF Retail's earnings downward trend has reversed, switching to an earnings growth trend. The investment opinion 'Buy' and the target stock price of 140,000 KRW were maintained. BGF Retail's closing price on the previous trading day was 111,000 KRW.

Seo Hyun-jung, a researcher at Hana Securities, said, "Until now, due to the slowdown in growth rate and the continuous earnings decline trend, earnings downgrade and valuation derating continued, but it is judged that this situation has been settled for the time being," adding, "Earnings are entering a recovery trend, and the current stock price has fallen to a 12-month forward price-to-earnings ratio (12MF PER) of 9 times, highlighting valuation attractiveness again." She also added that the strategy of approaching from the perspective of a defensive stock within the distribution sector would still be valid.

BGF Retail's consolidated sales for the third quarter are expected to be 2.3381 trillion KRW, an increase of 6% compared to the same period last year. Operating profit is estimated to increase by 2% to 89.1 billion KRW. These figures appear to be in line with market expectations. Although consumption sluggishness and unfavorable weather conditions had a negative impact, the net increase in stores is proceeding sequentially according to the annual plan (800 stores), and stable external growth continues.

In terms of profitability, product profit margins improved due to the peak season effect, and the burden of selling and administrative expenses increased less as the rise in rent and depreciation slowed down. From this quarter, BGF Networks will be consolidated; this company operates convenience store parcel delivery and advertising businesses, and its 2023 sales are expected to be around 87 billion KRW, with operating profit around 10 billion KRW. The consolidation effect is expected to sufficiently enable earnings growth on a consolidated basis.

Researcher Seo said, "The growth rate of existing stores is improving quarterly, and the fact that it has switched to an earnings growth trend is positive," adding, "During the third quarter, existing store sales slightly declined in July but turned to an increase compared to the previous year in August and September." From October, the number of customers, which had slowed down after the holiday season, is showing signs of recovery, and if this trend continues, the industry growth rate is expected to maintain above 5%.