[Click eStock] Hotel Shilla, Prolonged Adversity... Investment Opinion and Target Price Downward Revised

Investment Opinion Downgraded from Buy to Short-term Buy
Target Price Lowered by 20% Compared to Previous

Shinhan Investment Corp. downgraded its investment opinion on Hotel Shilla from 'Buy' to 'Short-term Buy (Trading Buy)' on the 4th, citing prolonged negative factors. The target price was also lowered from 55,000 KRW to 44,000 KRW. Researcher Sanghoon Cho of Shinhan Investment Corp. stated, "Reflecting the slow recovery in the business environment, we have lowered earnings estimates and reduced the target price by 20%. Structural performance improvement beyond the base effect is urgently needed."

Hotel Shilla's Q3 performance this year showed sales of 1.0162 trillion KRW, a mere 0.4% increase compared to the same period last year, and an operating loss of 17 billion KRW, turning to a deficit. Researcher Cho analyzed, "Hotel Shilla's Q3 results significantly missed consensus (average securities firm forecasts). Weak performance continued due to overlapping factors such as the downturn in Chinese consumer spending, increased discount rates, and airport store rental burdens." Despite a low base last year, the duty-free (TR) segment's sales remained at last year's level. Lower-than-expected demand, increased discount rates due to high inventory, and domestic and international airport rental burdens contributed to an expanded operating loss. The Hotel & Leisure segment maintained sales but saw a 10% decrease in operating profit due to increased fixed costs.

A conservative approach is necessary for the time being. Researcher Cho noted, "Concerns include the fundamental decline in the attractiveness of the duty-free channel, changes in cosmetics consumption trends, and prolonged Chinese consumer downturn, which reduce earnings visibility. To upgrade the investment opinion, a visible recovery of group tourists with high per-customer spending or a significantly larger-than-expected announcement of China's domestic economic stimulus measures is required."