[Click e-Stock] "Shinsegae to Improve Earnings from Q2 Bottom... Target Price Up"

Target Price Raised by 19% Compared to Previous Level

On July 11, Shinhan Investment & Securities raised its target price for Shinsegae from 185,000 won to 220,000 won, expecting the company's performance to show an improvement trend from the second quarter of this year, which is seen as the bottom. The investment opinion was maintained at 'Buy'.

Cho Sanghoon, an analyst at Shinhan Investment & Securities, stated, "We have raised the target price by 19% compared to the previous level, reflecting a change in the base date for target price calculation and an increase in the valuation of global peers." He added, "The valuation attractiveness, with a 12-month forward price-to-earnings ratio (PER) of 7.8 times and a price-to-book ratio (PBR) of 0.4 times, along with an enhanced shareholder return policy, are strong factors supporting the downside."

Supported by domestic demand activation policies, performance is expected to improve from the second quarter, which is seen as the bottom. Analyst Cho said, "After the launch of the new government, purchasing power is expected to improve thanks to domestic demand activation measures, and the struggling duty-free business has been reducing its losses each quarter due to restructuring and easing competition." He further commented, "With the industry as a whole striving to recover profitability, discussions are underway to implement a visa-free policy for Chinese group tourists at duty-free shops starting from the third quarter, which will serve as an upside momentum."

Shinsegae's second-quarter results are expected to fall short of market expectations. Analyst Cho noted, "Second-quarter revenue is expected to increase by 4.7% year-on-year to 1.68 trillion won, while operating profit is expected to decrease by 28.8% to 83.7 billion won, which is 13% below the consensus (the average of securities firms' forecasts)." He explained, "Both the core business and subsidiaries saw sluggish sales amid a slowdown in domestic consumption, while the burden of fixed costs (depreciation expenses) persisted." He added, "The department store's total sales growth rate was only 1%, as unfavorable weather conditions led to weak sales in the high-margin fashion category, and increased depreciation expenses from large-scale investments likely caused operating profit to decline by 12%."

DF (duty-free business) is expected to have narrowed its operating loss compared to the previous quarter. Analyst Cho said, "Although the duty-free operating environment remains challenging, the reduction in competition at downtown stores has improved discount rates for Daigong (Chinese resellers), the withdrawal from the Busan store has had a positive effect, and the expansion of luxury lineups at airport stores has increased the average transaction value, so the operating loss is expected to have narrowed compared to the previous quarter."