[Click eStock] "Emart, Buying Opportunity During Price Correction... Target Price Up"

Target Price Raised by 27.8% Compared to Previous Level

On the 21st, Korea Investment & Securities raised the target price for Emart from 90,000 KRW to 115,000 KRW, viewing the stock price adjustment as a buying opportunity considering factors for valuation recovery. The investment rating was maintained as 'Buy.'

Myungjoo Kim, a researcher at Korea Investment & Securities, stated, "We are raising the target price by 27.8% compared to the previous one," adding, "Although there may be short-term stock price adjustments due to sector rotation, considering factors for valuation recovery such as store efficiency improvement and the establishment of an Alibaba joint venture (JV), the stock price adjustment is a good buying opportunity."

Emart's first-quarter earnings this year are expected to exceed market expectations. Researcher Kim said, "Emart's consolidated sales for the first quarter are expected to increase by 0.9% year-on-year to 7.2724 trillion KRW, and operating profit is expected to increase by 206.9% to 144.6 billion KRW. Sales will meet market expectations, and operating profit will exceed them by 31.9%," adding, "The consensus (average securities firm forecast) seems to have only partially reflected the effect of excluding amortization of purchase price allocation (PPA) (24 billion KRW per quarter), and even considering this, it is estimated to exceed market expectations. The PPA amortization cost incurred at the time of acquiring Gmarket will no longer be reflected in earnings from the first quarter of this year."

On a separate basis, operating profit is expected to increase by 26.5% year-on-year to 117.9 billion KRW. Researcher Kim said, "Assuming that the gross profit margin (GPM) of discount stores improves by 0.5 percentage points year-on-year due to the effect of joint purchasing," adding, "Over the past two years, the discount store GPM has improved by an average of 0.31 percentage points, which is due to the slowdown in online industry growth and the bankruptcy of small and medium e-commerce companies, leading to reduced competition within the industry. This year is when the company's joint purchasing and industry competition easing occur simultaneously."

The Homeplus situation is analyzed as a factor easing competition within the industry. Researcher Kim explained, "It is difficult to judge the possibility of Homeplus's bankruptcy at present, but it is highly likely that the company will close unprofitable stores and reduce discounts during its restructuring process, which is a factor easing competition within the industry and thus positive for Emart."