Hotel Shilla Expects Immediate Earnings Improvement with China's Consumer Recovery... Target Price Raised

[Asia Economy Reporter Oh Ju-yeon] As the novel coronavirus infection (COVID-19) passes its worst phase, KB Securities recommends a low-price buying approach for Hotel Shilla at this point, maintaining a 'Buy' investment opinion and raising the target price by 10% to 110,000 KRW.

On the 14th, KB Securities forecasted that both domestic consumption in China and Hotel Shilla's performance will recover from the low point in February.

Researcher Park Shin-ae stated, "Consumer sentiment in China has been gradually recovering since March, and once COVID-19 is eradicated in China, sales at domestic downtown duty-free shops are expected to recover without delay," adding, "The poor performance in the first quarter will mark the bottom, with the business environment normalizing in the second quarter, and sales likely to perform well in the third and fourth quarters due to deferred demand."

Accordingly, she mentioned, "Once the COVID-19 situation in China begins to calm down, the stock price is expected to show a meaningful rebound by preemptively reflecting expectations of performance recovery."

An operating loss in the first quarter is inevitable.

Researcher Park explained, "The COVID-19 outbreak is negatively impacting all business sectors of Hotel Shilla," and added, "Domestic downtown duty-free shops are seeing a decrease in purchases by peddlers due to the contraction of Chinese consumer demand, and domestic and overseas airport duty-free shops are experiencing sales declines due to a sharp drop in passenger numbers."

KB Securities expects Hotel Shilla's consolidated first-quarter results to show sales of 1.0234 trillion KRW (down 24% year-on-year) and an operating loss of 15.9 billion KRW (OPM -1.6%).

Downtown duty-free shop sales are projected at 612.9 billion KRW (down 15%) with operating profit of 27.6 billion KRW (down 64%). Although offline sales will significantly decline, a slight growth in online sales is expected to somewhat offset the decrease.

Airport duty-free shops are expected to record sales of 160.6 billion KRW (down 30%) and an operating loss of 20.9 billion KRW due to decreased passenger numbers, with all overseas airport duty-free shops also facing sales declines and significantly expanded operating losses.

Researcher Park estimated, "Sales in Singapore will fall by 40%, with an operating loss of 7.8 billion KRW, and Hong Kong is expected to see a 50% plunge in sales and an operating loss of 6.7 billion KRW."

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