[Click e-Stock] "Shinsegae Expected to Recover in Duty-Free Business in Second Half... Target Price Up"

Target Price Raised by 16.3% Compared to Previous Level

On July 4, Korea Investment & Securities raised its target price for Shinsegae from 215,000 won to 250,000 won, anticipating a recovery in the duty-free industry in the second half of the year. The investment opinion was maintained as 'Buy'.

Kim Myungjoo, a researcher at Korea Investment & Securities, stated, "Recently, the tourism balance deficit has been shrinking rapidly, and at the same time, consumer sentiment is recovering due to the government’s supplementary budget and other factors." He further explained, "Since both the number of births and marriages in Korea have rebounded this year, favorable supply and demand inflows into the distribution sector are expected to continue." He added, "Recently, outbound travel has slowed while inbound travel has increased significantly, resulting in sluggish sales in the Japanese department store industry, but solid sales trends in the Korean department store industry. Given the decline in foreign ownership during the downturn in the Korean department store industry in 2023 and 2024, this is a very positive trend for Shinsegae."

Shinsegae’s earnings for the second quarter of this year are expected to fall short of market expectations. Kim forecasted, "On a consolidated basis, Shinsegae’s second-quarter sales will increase by 1.7% year-on-year to 1.6319 trillion won, while operating profit will decrease by 25.5% to 87.5 billion won, falling 9.3% below market expectations." He explained, "The main reason for the shortfall is the sluggish performance of Shinsegae International, a key subsidiary. Due to the burden of depreciation expenses and a deteriorating product mix, the operating profit of the department store division is expected to decline year-on-year in the second quarter, following the first quarter." The daily sales of the duty-free business in the second quarter are expected to be similar to the first quarter, at around 9.2 billion won. Kim added, "Thanks to the company’s efforts to improve profitability, the sales discount rate declined slightly compared to the first quarter. As a result, the deficit in the duty-free business in the second quarter is expected to remain at the same manageable level as the first quarter, which was better than market concerns due to the refund of license fees."

A recovery in the duty-free business is expected in the second half of the year. Kim stated, "Currently, expectations for the duty-free industry are not reflected in Shinsegae’s share price." He continued, "According to media reports, the government is planning to implement a visa-free entry policy for Chinese group tourists soon and is also considering making it permanent. Contrary to market expectations, if the Chinese cosmetics industry recovers rapidly in the second half, or if the visa-free policy leads to a significant increase in Chinese group tourists or small-scale Daigong (Chinese bulk buyers), Shinsegae’s share price is likely to respond sensitively."