[Click eStock] "GS Retail, Profitable Q1 Stands Out... Target Price Raised"

Hana Financial Investment Issues 'Buy' Investment Opinion and Sets Target Price at 42,000 Won... Closing Price on 27th at 36,500 Won

[Asia Economy Reporter Kum Bo-ryeong] GS Retail's convenience store traffic was somewhat sluggish due to the impact of the novel coronavirus disease (COVID-19), but its operating profit surged significantly.

According to Korea Investment & Securities on the 28th, GS Retail's first-quarter sales reached 2.1 trillion KRW, a 3% increase compared to the previous year. Operating profit soared by 315% to 88.8 billion KRW. Although this was thanks to a one-time real estate advisory fee of 45 billion KRW, even excluding this, operating profit was 43.8 billion KRW, up 105% from the previous year.

It was a first quarter that particularly highlighted improvements in profitability for convenience stores and supermarkets. Convenience store sales and operating profit were 1.6 trillion KRW and 41 billion KRW, respectively, increasing by 2.9% and 52% year-on-year. Supermarket sales declined by 8% due to a decrease in directly operated stores, but operating profit recorded 16 billion KRW, showing significant improvement from a 5 billion KRW loss last year.

Na Eun-chae, a researcher at Korea Investment & Securities, said, "This is a profitability surprise. Although the average number of convenience stores increased by 5% compared to the previous year, existing store sales in March declined by 2.5% year-on-year due to the full impact of COVID-19. However, profitability improved thanks to expanded integrated MD purchasing and special demand for masks and hygiene products." She added, "Supermarkets improved profitability as the cost of sales ratio and selling and administrative expenses ratio both dropped significantly due to the reduction of low-profit directly operated stores and expansion of integrated MD with convenience stores. In other sectors, although e-commerce and H&B continued to incur losses, there was about a 3 billion KRW profit improvement effect from the termination of underperforming businesses."

Traffic, which acts as a variable in the convenience store business, has been somewhat weak but is expected to gradually recover. Existing store sales growth rate was 0.5% in January and February but recorded minus 7% last month. Researcher Na said, "Traffic around schools and academies has been sluggish. The current situation in April is similar to last month," but added, "However, as the increase in COVID-19 cases in Korea has clearly slowed, traffic is also expected to gradually recover. Internally, strategies such as strengthening growth categories focused on fresh food and enhancing platform business to expand traffic stand out."

Hana Financial Investment gave GS Retail a 'Buy' investment opinion. The target stock price was raised from 36,000 KRW to 42,000 KRW. The closing price on the 27th was 36,500 KRW.

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