[Click eStock] "Hotel Shilla: Duty-Free Slump Is a Solvable Issue"

On September 10, IBK Investment & Securities analyzed that although Hotel Shilla's hotel division has been held back by sluggish performance at its Jeju hotel despite favorable industry conditions, profit growth is expected to accelerate as the oversupply in the Seogwipo market is resolved. The investment opinion remains 'Buy,' and the target price is maintained at 55,000 won.

Previously, Hotel Shilla reported an operating profit of 8.7 billion won in the second quarter, a decrease of 68.7% compared to the same period last year. Revenue reached 1.0254 trillion won, marking only a 2.3% increase. The company posted a net loss of approximately 880 million won, turning to a deficit. The widening deficit in the duty-free business was cited as the main reason for the poor performance.

Nevertheless, Nam Sung-hyun, a researcher at IBK Investment & Securities, expressed optimism about resolving the duty-free business slump, stating, "A reasonable alternative is expected to be reached through rent negotiations with Incheon International Airport, and based on the experience of several years of underperformance, there is a high possibility of restructuring into a more efficient business model." He explained that, given the confirmed limitations in duty-free market growth despite the increase in Chinese visitors to Korea, fundamental improvement should be expected through cost efficiency and structural business restructuring rather than relying solely on demand growth.

On the other hand, he projected that the hotel division's earnings growth will continue in the second half of the year. Nam stated, "With the continued increase in foreign visitors to Korea and a persistent structural supply shortage, both ADR (Average Daily Rate) and OCC (Occupancy Rate) are likely to remain stable," adding, "The opening of the Gangneung Monogram Hotel will further contribute, and additional pipeline expansion is planned in the mid- to long-term."

He also anticipated that the oversupply and demand decline in the Seogwipo market, which have been dragging down the performance of the Jeju hotel, will be resolved. The rationale is that the increase in accommodation facilities in Seogwipo is not significant, and business activities of companies with weak capital strength are likely to be limited. Nam assessed, "It seems highly likely that the trickle-down effect from the increase in Chinese visitors to Korea will lead to recovery," estimating the domestic hotel market's ADR growth rate over the next three years at an annual average of +7%.