[Click e-Stock] "Hotel Shilla: Duty-Free Sector Needs Improvement... Neutral Investment Opinion"

On October 17, Korea Investment & Securities maintained a neutral investment opinion on Hotel Shilla, stating, "A meaningful rise in the stock price is only possible if there is an improvement in the duty-free industry environment."

On this day, Kim Myungjoo, a researcher at Korea Investment & Securities, explained, "Due to the sluggish performance of the domestic duty-free sector, third-quarter operating profit will fall short of market expectations."

Regarding Hotel Shilla's third-quarter performance, the company forecasted sales of 1.0779 trillion won and an operating profit of 16.8 billion won, marking a return to profitability. It is predicted that operating profit will fall 12.8% below the market consensus. Kim stated, "With the increase in airport passengers, the rental burden in the third quarter rose compared to the second quarter," and added, "We estimate that the duty-free market conditions in the third quarter did not improve compared to the second quarter."

Kim gave a positive assessment of Hotel Shilla's withdrawal from Incheon Airport DF1 (perfume, cosmetics & liquor, tobacco). Kim explained, "On September 18, Hotel Shilla announced its decision to cease operations of DF1," and continued, "Currently, Hotel Shilla is operating both DF1 and DF3 (fashion, accessories, and boutique), but plans to operate the DF1 zone only until March 17 of next year."

He further noted, "Since Hotel Shilla operates duty-free stores at airports in Hong Kong and Singapore, the withdrawal from DF1 will not lead to a decline in Hotel Shilla's buying power for cosmetics and perfume." He added, "By withdrawing from DF1, Hotel Shilla could see a performance improvement of 78.4 billion won this year. However, since the timing of penalty payments and how they will be reflected are unknown, this has not been included in performance estimates."

Kim assessed that the hotel industry is likely to maintain stable results thanks to the steady rise in inbound travelers, but a significant increase in average spending per customer is unlikely, given the high proportion of food and beverage sales at Hotel Shilla's five-star hotels. He commented, "Since September 29, the visa-free entry policy for Chinese group tourists has been implemented," and advised, "Rather than being impatient, it is better to take time to observe the increasing trend of Chinese group tourists and improvements in the Chinese cosmetics industry, and to assess the potential for growth accordingly."