[Click e-Stock] "Lotte Shopping Share Price Correction Should Be Seen as a Buying Opportunity"

On July 16, Korea Investment & Securities stated in a report that the recent share price correction of Lotte Shopping, due to its weak performance, should be seen as a buying opportunity. The firm maintained its Buy rating and target price of 94,000 won.

Lotte Shopping is expected to post consolidated sales of 3.5331 trillion won and operating profit of 49.2 billion won for the second quarter, with operating profit projected to fall short of market expectations by 29.4%.

Kim Myungjoo, a researcher at Korea Investment & Securities, explained, "The reason operating profit is falling short of market expectations is due to weak profitability in domestic department stores and discount stores." She added, "Although same-store sales growth at domestic supermarkets was relatively solid at 1.9% compared to competitors in the second quarter, increased promotional expenses and costs related to Ocado led to a wider operating loss of 27.8 billion won for discount stores (domestic and overseas) compared to the previous year."

However, she noted that the ongoing trend of foreign investors buying distribution sector stocks is likely to have a positive impact on Lotte Shopping’s share price.

Kim added, "Despite concerns over second-quarter results, the foreign ownership ratio in Lotte Shopping is also rising. This is because the outlook for Korea’s distribution industry in the second half of the year is likely to be better than in the first half, and valuations for distribution companies are not burdensome." She continued, "In the second half, the base for the retail industry is very low, and the government is implementing a supplementary budget to boost the domestic economy. Additionally, the recent increase in the number of births and marriages serves as a factor for valuation recovery in the distribution sector."

She advised investors to take advantage of the share price correction following the weak second-quarter results as a buying opportunity. "Due to the weak second-quarter results, there is likely to be increased demand for profit-taking, and Lotte Shopping’s share price could see a correction around the earnings announcement," she said. "Given the attractiveness of Lotte Shopping’s valuation and the expected improvement in the distribution industry in the second half, we recommend using any share price correction as a buying opportunity."