[Click e-Stock] "Hotel Shilla to Turn Profitable This Year... Target Price Raised"

Hana Securities projected on June 10 that Hotel Shilla, which recorded a loss last year, will achieve an operating profit of 60 billion won this year. The target stock price was raised to 60,000 won.

In the first quarter of this year, Hotel Shilla posted an operating loss of 2.5 billion won, significantly exceeding expectations. The duty-free business recorded an operating loss of 5 billion won, but the loss was greatly reduced compared to the previous quarter, mainly due to improved margins at downtown stores. While domestic and overseas airport duty-free stores are estimated to have posted a combined loss of about 30 billion won, the recovery trend continued compared to the previous quarter.

Seo Hyunjung, a researcher at Hana Securities, stated, "We estimate consolidated operating profit in the second quarter to be 19 billion won," adding, "Both performance and market conditions are expected to continue improving following the first quarter."

Seo predicted that Hotel Shilla's results will improve significantly in the second and third quarters. She said, "With the reduction of inefficient Daigou (personal shoppers) and the easing of competitive intensity, downtown store margin rates are expected to remain at around 4-5%," and added, "If visa-free group tourism is temporarily allowed in the third quarter, a shift in the customer mix toward individual travelers and small-scale Daigou could lead to additional profitability improvement."

She continued, "Although persistent annual losses are expected at domestic and overseas airports, the completion of rent reduction negotiations at overseas airports in the second and third quarters is expected to reduce quarterly losses."

The recovery of the Chinese economy is also expected to impact Hotel Shilla's profit improvement. Seo said, "Although the proportion has declined somewhat, Chinese customers still account for nearly 70% of the duty-free business," adding, "The hotel business, which accounts for 15% of consolidated sales, is also expected to post solid results as the number of tourists increases."

Seo concluded, "The turnaround momentum is expected to be concentrated and maximized in the second and third quarters," and emphasized, "Despite the high valuation burden, it is important to note that the extent of performance improvement could exceed expectations. We maintain a 'Buy' investment opinion and raise the target stock price to 60,000 won."