[Market Focus] Hotel Shilla Rises on Suspension of Loss-Making Incheon Airport Duty-Free Store

As of 9:25 a.m. on September 19, Hotel Shilla's stock price on the Korea Exchange was up 6.6% from the previous day's closing, trading at 56,500 won. This appears to be due to the company's announcement the previous day that it would return its duty-free DF1 zone business license at Incheon International Airport, where it has continued to post losses.

The DF1 zone, which sells perfumes and cosmetics, generates annual sales of 429.3 billion won, accounting for 10.9% of the company's consolidated sales last year. Hotel Shilla will only operate the DF1 zone until March 17 next year, but plans to continue operating the DF3 zone, which covers fashion, accessories, and boutique sales.

The rent for the Incheon Airport location is calculated by multiplying the total number of departing passengers by the rental fee per passenger. Although the number of departing passengers has recovered to pre-COVID-19 levels, the number of people making purchases at duty-free shops has not increased.

Korea Investment & Securities estimated that Hotel Shilla's operating profit could improve by about 70 to 80 billion won next year as a result of withdrawing from the DF1 zone. Although a one-time penalty of 190 billion to 200 billion won will be incurred due to the withdrawal, considering that the contract was a 10-year long-term agreement until June 2033, the withdrawal is actually beneficial for the company in the long run.

Kim Myungjoo, an analyst at Korea Investment & Securities, said, "Since Hotel Shilla is operating at airports in Hong Kong and Singapore, the suspension of operations at Incheon Airport is not expected to reduce its buying power for cosmetics and perfumes. While the one-time penalty is unfortunate, given the annual improvement in operating profit, the suspension of operations in the DF1 zone at Incheon Airport is positive for Hotel Shilla in terms of performance improvement."