[Click e-Stock] "BGF Retail Enters Low-Growth Phase... Target Price Lowered"

Target Price Revised Down by 10% from Previous Level

On May 9, Shinhan Investment & Securities reported that BGF Retail has entered a low-growth phase and lowered its target price from 150,000 won to 135,000 won. The investment opinion was maintained as 'Buy'.

Shinhan Investment & Securities analyst Cho Sanghoon stated, "We have revised our target price down by 10% compared to before, reflecting lowered earnings estimates due to sluggish top-line growth. Although the current valuation, at a 12-month forward price-to-earnings ratio (PER) of 10 times, has fallen below the lower end of the band, a visible rebound in customer traffic and same-store sales growth is necessary."

In the first quarter of this year, BGF Retail posted sales of 2.02 trillion won, up 3.2% year-on-year, and operating profit of 22.6 billion won, down 30.7%. Analyst Cho commented, "This performance fell short of the consensus (the average of brokerage forecasts) by 28%. Due to unfavorable weather conditions, a shortage of business days, and a slump in domestic consumption, same-store sales growth in the first quarter was -2.1%. In particular, customer traffic decreased by 3.2%, which is disappointing."

There are expectations that the situation will change from the second quarter. Analyst Cho said, "From the second quarter, the situation is expected to turn around. Price increases by processed food companies are expected to raise the average transaction amount, and favorable weather conditions and strengthening of differentiated products are likely to boost customer traffic."

It is analyzed that the convenience store industry has entered a low-growth phase. Analyst Cho explained, "Even the highly defensive convenience store sector is being hit by the prolonged consumption slump. This year's store opening guidance was presented at only 700 stores, which is just 76% of the past five-year average (about 900 stores), indicating entry into a low-growth phase." He added, "To justify the high valuation levels of the past, qualitative growth through a rebound in same-store sales, rather than quantitative growth through new store openings, is necessary. This can be achieved by strengthening product competitiveness and expanding the number of headquarters-leased stores."