[Click e-Stock] "Shinsegae Expected to Improve from Q1 Earnings Bottom... Target Price Raised"

Target Price Raised by 9% Compared to Previous Estimate

On May 14, Shinhan Investment Corp. raised its target price for Shinsegae from 170,000 won to 185,000 won, projecting that the company's performance will improve with the first quarter of this year marking the bottom. The investment opinion was maintained at 'Buy'.

Shinhan Investment analyst Cho Sanghoon stated, "We have raised our target price by 9%, reflecting the valuation increase in the department store and duty-free peer group," and added, "Attractive valuation and the strengthened shareholder return policy are strong factors supporting the downside."

In the first quarter of this year, Shinsegae reported sales of 1.67 trillion won, up 3.8% year-on-year, and operating profit of 132.3 billion won, down 18.8%. Analyst Cho commented, "First-quarter results were in line with the lowered consensus (the average forecast by securities firms). Amid sluggish consumption, both the main business and subsidiaries underperformed, while depreciation expenses continued to weigh on results. Excluding one-off gains, the results fell 5% short of consensus."

The department store division posted a total sales growth rate of -0.5%, indicating weak performance. Cho explained, "Sales in the high-margin fashion category were sluggish due to unfavorable weather conditions, and operating profit fell by 5% due to increased depreciation expenses from large-scale investments." He continued, "Shinsegae International saw operating profit drop by 58% due to weak consumption and poor domestic fashion sales, while DF's business conditions remain challenging. However, the operating loss narrowed compared to the previous quarter, helped by improved discount rates for Chinese Daigong shoppers due to eased competition at downtown stores, the effect of withdrawing from the Busan branch, and higher average spending per customer thanks to the expansion of luxury lineups at airport stores."

Performance is expected to improve from the first quarter low. Cho projected, "Domestic demand stimulus measures and improved consumer sentiment during the presidential election period, as well as enhanced purchasing power supported by monetary and fiscal policies that will be fully implemented after the election, are anticipated." He added, "The duty-free business is expected to show a trend of narrowing losses each quarter due to restructuring and eased competition. While the industry as a whole is striving to restore profitability, the Chinese visa waiver policy expected to materialize in the third quarter will serve as an upside momentum."