Stock Price Recovers to 70,000 Won for the First Time in a Year... Up 40% This Year
Profitability Improves Thanks to Structural Reform and Overseas Business Growth
Brokerages Raise Target Prices One After Another
Lotte Shopping has continued its strong performance, recently hitting a new 52-week high. This is because its profitability recovery through structural reforms is becoming more visible. In particular, as the domestic market slump continues, the strong performance of its overseas business is raising expectations for improved results.
Stock Price Recovers to 70,000 Won...Brokerages Raising Targets
According to the Korea Exchange on May 14, Lotte Shopping's stock price recently recovered to the 70,000 won level, marking the first time in a year. On May 12, the stock rose to 77,900 won during trading, setting a new 52-week high. Since the beginning of this year, the stock price has risen by about 40%.
Market expectations are also rising. After Lotte Shopping's first-quarter earnings announcement this year, securities firms have been raising their target prices one after another. Samsung Securities raised its target from 74,000 won to 85,000 won, while NH Investment & Securities increased theirs from 80,000 won to 90,000 won. Shinyoung Securities raised its target from 75,000 won to 80,000 won, Yuanta Securities from 70,000 won to 88,000 won, Hanwha Investment & Securities from 85,000 won to 110,000 won, Shinhan Investment & Securities from 77,000 won to 85,000 won, Kiwoom Securities from 77,000 won to 90,000 won, and Daishin Securities from 80,000 won to 90,000 won. Baek Jaeseung, a researcher at Samsung Securities, explained, "Even in a difficult consumer environment, internal strengthening through restructuring is resulting in cost reductions this year. Taking this into account, we raised our operating profit estimate for this year by 6% and increased our target price by 15% compared to the previous target."
Yoo Junghyun, a researcher at Daishin Securities, also stated, "As a diversified retail company, Lotte Shopping has overcome the disadvantage of low profit visibility during an economic downturn. Through restructuring, its profit visibility has greatly improved, which not only increases confidence in its valuation but also significantly raises the possibility of a re-rating of its notably low price-to-book ratio (PBR)."
The continued rise in the stock price and the upward revisions of target prices by brokerages are due to the visible improvement in Lotte Shopping's profitability. In the first quarter of this year, Lotte Shopping recorded a consolidated operating profit of 148.2 billion won, a 29% increase compared to the same period last year. This figure exceeded market expectations. According to financial information provider FnGuide, the consensus (average forecast by securities firms) for Lotte Shopping's first-quarter operating profit was 131.7 billion won.
By business segment, department store sales were 806.3 billion won, a 1.1% decrease, reflecting the closure of the Masan branch last year. However, thanks to the renewal of major stores such as the main branch and Jamsil branch and the operation of pop-up stores, sales at existing domestic stores increased by 1%. Operating profit in the department store segment rose by 44.3% to 130 billion won due to cost efficiency. The mart segment saw sales increase by 0.3% to 1.4873 trillion won, but operating profit decreased by 34.8% to 28.1 billion won. Supermarket sales were 305.2 billion won, and operating profit was 3.2 billion won, down 7.2% and 73.3%, respectively. The mart and supermarket segments were the most affected by the consumption slump. In addition, losses from the transfer of the 'e-grocery' (online grocery business) segment (-10.9 billion won) and costs related to ordinary wages were incurred.
The standout aspect of the first-quarter results was the growth of the overseas business. Sales at Lotte Mall West Lake Hanoi, which fully opened in September 2023, increased by 21.9%, and operating profit turned positive for the first time in six quarters, reflecting generally positive results at overseas stores. In addition, sales at the Indonesian department store increased by 2.7% during the same period. Overall, the overseas department store business saw sales rise by 6.2% and achieved an operating profit surplus. The mart segment also performed well overseas, particularly in the Vietnamese market. Overseas sales were 468.9 billion won and operating profit was 21.4 billion won, up 9.5% and 20.6%, respectively. Operating profit in Vietnam was 12.6 billion won, and in Indonesia, it was 8.8 billion won.
Kim Myungjoo, a researcher at Korea Investment & Securities, analyzed, "Lotte Shopping's first-quarter sales met market expectations, and operating profit exceeded them by 12.5%. This was due to depreciation cost reductions and better-than-expected overseas business performance. In the first quarter, West Lake in Vietnam turned a profit for the first time, and overseas discount stores also performed better than expected."
Performance and Stock Price Expected to Remain Strong
Strong performance and stock price trends are expected to continue. This is because the industry environment is anticipated to improve, supported by policies to boost domestic demand following the presidential election, and because structural reform efforts by consolidated subsidiaries are continuing amid strong overseas business performance.
Earlier, on May 8, Lotte Group and JoongAng Group announced that they had signed a memorandum of understanding for the merger of their film business affiliates, Lotte Cultureworks and Megabox JoongAng. Lotte Shopping holds an 86.37% stake in Lotte Cultureworks.
In the first quarter, Cultureworks recorded sales of 86.3 billion won, a 24.9% decrease compared to the same period last year, and posted an operating loss of 10.4 billion won, turning to a deficit. This was due to a decline in moviegoers caused by the absence of major domestic releases this year. Joo Younghoon, a researcher at NH Investment & Securities, commented, "While the profitability of major subsidiaries such as Lotte Himart and Home Shopping has mostly improved, it is unfortunate that Cultureworks turned to a loss due to the lack of blockbuster releases. However, on May 8, Lotte Cultureworks and Megabox JoongAng signed an MOU for a merger, and once the merger is completed, Cultureworks' profit and loss will be excluded from Lotte Shopping's consolidated results." Lee Jinhyup, a researcher at Hanwha Investment & Securities, evaluated, "Although Cultureworks is not a loss-making subsidiary, it has caused performance volatility, so its exclusion from consolidation will have a positive effect on performance stability."
There are expectations that momentum will expand from the second quarter. Lee Jinhyup explained, "With the entry into a low base period and increased liquidity, a rebound in domestic consumption is expected, and with the anticipated increase in foreign consumer inflows, department store momentum will expand from the second quarter. Although the momentum for profit growth in grocery has weakened due to the completion of integrated purchasing effects, the decline in Homeplus' business capabilities and the resulting increase in market share for Lotte Shopping will become more pronounced from the second quarter, expanding overall momentum again."
Kim Myungjoo stated, "Because the base for the retail industry is lower in the second and fourth quarters than in the first quarter, Lotte Shopping's domestic business performance in the remaining quarters of this year is likely to be better than in the first quarter. Favorable industry conditions are attracting positive capital flows into the retail sector. At the same time, the strong performance of overseas business is coming into focus, and Lotte Shopping's stock price is expected to maintain its strong trend."
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