[Click eStock] "Hotel Shilla, 4Q Earnings Strong but Target Price Cut Due to New Coronavirus Issues"

[Asia Economy Reporter Song Hwajeong] Samsung Securities on the 3rd downgraded the target price of Hotel Shilla from 130,000 KRW to 120,000 KRW, anticipating an inevitable earnings shock due to the novel coronavirus (Wuhan pneumonia) outbreak. The investment rating was maintained at 'Buy.'

Park Eunkyung, a researcher at Samsung Securities, stated, "Reflecting the recent epidemic issue, we have lowered this year's earnings per share (EPS) forecast by 9% and reduced the target price by 8%. However, due to the recent sharp decline in stock price, the valuation attractiveness has actually increased, and we recommend turning this crisis into an opportunity."

Last year's fourth-quarter earnings significantly exceeded consensus. Researcher Park explained, "Hotel Shilla's operating profit in the fourth quarter of last year increased by 183% year-on-year to 77.6 billion KRW, surpassing market expectations by 45%. Even after removing a one-time gain of 20 billion KRW, it exceeded consensus by 10%. This was because duty-free demand was strong, with sales increasing by 29%, beating consensus by 7%." Domestic duty-free sales and operating profit grew by 41% and 194%, respectively.

Although an earnings shock due to the novel coronavirus outbreak is inevitable, demand is expected to recover in the second half of the year following an extremely weak first quarter. Researcher Park said, "Wholesale demand is expected to be deferred rather than disappear unless the Chinese economy falls into a severe slump throughout this year, so deferred demand will appear from the second half. Domestic duty-free sales in January grew by more than 20%, exceeding initial expectations, but it seems the epidemic began to impact from the last week of January." Samsung Securities forecasts that demand weakness in February is unavoidable, projecting first-quarter sales to decrease by 16% and operating profit by 99%, resulting in a break-even point (BEP) level.

This content was produced with the assistance of AI translation services.