[Click eStock] "BGF Retail, Slow Stock Recovery Amid Unfavorable Environment... Target Price Down"

Target Price Lowered by 15.2% from Previous Level

On the 1st, Korea Investment & Securities downgraded the target price for BGF Retail from 165,000 KRW to 140,000 KRW, citing an unfavorable industry environment that is expected to slow the stock price recovery. The investment rating was maintained at 'Buy.'

Myungjoo Kim, a researcher at Korea Investment & Securities, stated, "We are lowering the target price by 15.2% compared to the previous level," adding, "Considering the noticeably slow pace of store openings within the convenience store industry recently and the potential recovery of competitiveness in other distribution channels, it seems difficult for the convenience store channel to regain market share within the industry this year. Based on this, we have applied a lower valuation multiple." He continued, "Due to the unfavorable industry environment, BGF Retail's stock price is expected to show a slow recovery, but if cigarette prices increase or government subsidies are provided, the convenience store market share within the retail industry could recover rapidly regardless of the industry environment."

BGF Retail's first-quarter performance this year is expected to fall short of expectations. Researcher Kim analyzed, "BGF Retail's first-quarter sales are projected to increase by 3.6% year-on-year to 2.0241 trillion KRW, while operating profit is expected to decrease by 9.9% to 29.4 billion KRW, falling short of market expectations by 2.0% and 17.3%, respectively. February this year was much colder than usual, and March's weather conditions were similar to last year. Accordingly, same-store sales growth in the first quarter compared to the fourth quarter of last year is expected to be sluggish at around -0.5% to -1%." Due to the unfavorable weather conditions in the first quarter, sales of high-margin products such as beverages are expected to have been weak. Consequently, despite recent price increases by food and beverage companies, BGF Retail's gross profit margin (GPM) is not expected to improve compared to the same period last year.

There is a forecast that the convenience store channel's market share within the retail industry will not easily recover this year. Researcher Kim stated, "Due to poor same-store sales growth and slow store openings by companies, the convenience store channel's market share in the retail industry is expected to slightly decline to 5.8% in the first quarter, compared to 5.9% in the first quarter of last year," adding, "The number of stores operated by the three major convenience store chains in February this year increased by 0.9% year-on-year, which is the lowest level ever recorded."