[Click eStock] "BGF Retail Expected to See Upward Trend in Earnings and Share Price from Q3"

Effect of Consumer Coupons
Target Price Raised

On August 8, Hana Securities announced that it had raised its target price for BGF Retail from 140,000 won to 150,000 won, reflecting improved performance due to the impact of consumer coupons and the potential for a medium- to long-term industry recovery. The company also maintained its 'Buy' investment rating.

Hana Securities expects both earnings and share price to trend upward from the second quarter. Seo Hyunjung, a researcher at Hana Securities, explained, "In July, same-store sales growth turned positive year-on-year, and approximately 9.7% of the total consumer coupon payments so far have flowed into convenience stores." This figure is higher than the share that convenience stores received during the previous emergency disaster relief payment program. Seo added, "Same-store sales growth at convenience stores is likely to recover in the second half of the year, and we expect an earnings uptrend starting from the third quarter."

The medium- to long-term outlook is also positive. Seo noted, "Although BGF Retail's store growth rate is expected to slow to below 2% this year, the business structure has been rapidly streamlined through aggressive store closures, so profit leverage will be significant when sales recover." In particular, Seo assessed that if the effect of a tobacco price hike is added, the pace of earnings recovery could accelerate even further.

BGF Retail's consolidated sales for the second quarter were 2.291 trillion won, up 4% year-on-year. However, operating profit was 69.4 billion won, down 9% from the same period last year and falling short of the market consensus of 72 billion won. The operating margin was 3.0%, a decrease of 0.4 percentage points from the previous year.

Seo stated, "Same-store sales growth declined by 2% year-on-year," and explained, "Unfavorable industry conditions, such as a slowdown in consumer spending and increased consumer sensitivity due to processed food price hikes, negatively affected sales." Seo also said, "Due to the impact of small store closures, the net increase in stores in the second quarter slowed compared to the first quarter, falling well short of the annual target of 700 stores," and interpreted this as a shift toward a strategy focused on qualitative growth.