[Click e-Stock] "Shinsegae Expected to Show Solid Stock Performance"

Target Price Raised from 195,000 Won to 215,000 Won

On June 9, Korea Investment & Securities raised its target price for Shinsegae from 195,000 won to 215,000 won, stating that the company's stock price is expected to be on par with other department store companies, considering the potential for improvement in the duty-free industry in the second half of this year and the possibility of a reduction in Incheon Airport's rental fees. The investment opinion remains 'Buy'.

Shinsegae's stock price has risen by about 30% compared to the beginning of the year, which is relatively weak compared to other department stores (Hyundai Department Store +49.8%, Lotte Shopping +44.4%). Kim Myungjoo, a researcher at Korea Investment & Securities, explained, "This is because Shinsegae has fewer factors for performance improvement compared to other department stores," and added, "Lotte Shopping continues to benefit from profit improvements due to reduced depreciation expenses throughout the year, while Hyundai Department Store is likely to see continued improvement in the second quarter, following the first quarter, as it reflects the refund of tariffs related to its consolidated subsidiary Zinus."

However, the positive outlook for the duty-free industry in the second half of the year is seen as a potential signal for a rebound in Shinsegae's stock price. Kim pointed out, "Since the beginning of this year, Lotte Duty Free has stopped engaging in large-scale Daigong transactions with low profitability, which has improved the profitability of Shinsegae and Hotel Shilla's downtown duty-free stores." He also noted, "The Chinese cosmetics industry, which struggled last year, appears to be bottoming out this year, and the strengthening of the yuan exchange rate is a factor that could lead to a recovery in Daigong demand."

The adjustment of airport rental fees between Incheon Airport, Shinsegae, and Hotel Shilla, which was scheduled for June 2, has been postponed. Kim commented, "It is difficult to predict the outcome of the rental fee adjustment, but the current stock price does not reflect expectations for a reduction in rental fees." He analyzed, "If the adjustment is successful, it would be very positive for Shinsegae's performance and stock price."

Kim also explained, "Since the second half of last year, the number of marriages has increased, leading to a recovery in the birth rate," and added, "This is positive for demand in the retail sector, including Shinsegae." In the upcoming third quarter, China is expected to implement a visa-free policy for group tourists. Although it may be difficult to expect the same level of group tourists as in the past due to changes in travel patterns, Kim believes that the share (about 3% of the industry) is likely to increase compared to the first quarter.