[Click e-Stock] "Shinsegae Food's Profitability Recovering... Needs Mid- to Long-Term Growth Drivers"

On June 25, Hana Securities stated that while Shinsegae Food is expected to recover its operating profit to the 30 billion won level this year through efficiency measures aimed at strengthening profitability, the company still needs new mid- to long-term growth drivers beyond its NBB (No Brand Burger) franchise business. Accordingly, Hana Securities lowered its target price from 60,000 won to 50,000 won but maintained its 'Buy' investment rating.

In the first quarter, Shinsegae Food posted consolidated sales of 358.6 billion won (down 6.1% year-on-year) and operating profit of 7.9 billion won (up 69.7% year-on-year), showing a recovery compared to the previous year. However, despite favorable conditions in the food service market, sales in the food service segment declined by 10.4% due to the termination of contracts with major corporate clients. Sales in the dining-out segment also fell by 2%. Sales to Emart and Starbucks, as well as sales in the bakery segment, remained at similar levels to the previous year.

For the second quarter, consolidated sales and operating profit are estimated at 378 billion won (down 4.0% year-on-year) and 9.2 billion won (down 4.8% year-on-year), respectively. Sim Eunju, a researcher at Hana Securities, commented, "While sales in the food service segment are inevitably expected to decline year-on-year, we believe the ongoing restructuring of low-profit clients will continue to support profitability recovery." She also projected, "Sales in the dining-out segment are expected to see a slight increase year-on-year, driven by the expansion of NBB franchises and expectations for government-issued consumption coupons." Meanwhile, sales in the manufacturing and food materials segments are forecast to decline due to the impact of demarketing. Although bakery segment sales are expected to remain similar to previous years, cost pressures are projected to ease in the second half of the year.

Currently, there are approximately 200 NBB (No Brand Burger) franchise locations, and it is estimated that Shinsegae Food is expanding its franchise network outside the Seoul metropolitan area. Sim noted, "This year's consolidated sales and operating profit are estimated at 1.4558 trillion won (down 5.1% year-on-year) and 32.2 billion won (up 55.0% year-on-year), respectively. However, considering the company's past performance, when annual profits reached 40 billion won, there is still a long way to go." She added, "It is also time for the company to find answers regarding new mid- to long-term growth drivers beyond the NBB franchise business."