Hotel Shilla, Will Foreigners Return? Expectations for Performance Improvement in the Second Half of the Year

Foreigners Net Buyers for 5 Consecutive Trading Days Early This Month
Airport Duty-Free Rent Discount Saves 14 Billion Won Monthly
Expectations for 'Bottari-sang' Revival with Increased China Flights

[Asia Economy Reporter Minwoo Lee] Foreign capital has started flowing back into Hotel Shilla, which was hit hard by the novel coronavirus (COVID-19). This reflects expectations that performance could improve from the second half of the year, supported by positive factors such as rent reductions for domestic airport duty-free shops.

According to the Korea Exchange on the 10th, foreign investors have net purchased about 19.2 billion KRW worth of Hotel Shilla shares since the beginning of this month until the day before. This ranks 17th among the top net purchases by foreigners in the KOSPI market. This contrasts with the net selling of 32.7 billion KRW over the first eight trading days of last month. The net buying streak that began on the 29th of last month continued for five trading days until the 4th. This is the first time since April 27th that foreigners have bought Hotel Shilla shares for five consecutive trading days. It is the second time since January, when COVID-19 began to spread in earnest.

Hotel Shilla’s performance has been significantly weak this year due to the COVID-19 crisis. On a consolidated basis, it recorded sales of 943.7 billion KRW and an operating loss of 66.8 billion KRW in the first quarter. Compared to the same period last year, sales fell by 29.7%, and operating profit turned into a loss. Even gloomier results are expected in the second quarter, when COVID-19 spread worldwide. According to the consensus earnings forecast compiled by financial information firm FnGuide, sales are expected to be 835.2 billion KRW with an operating loss of 43 billion KRW. This represents nearly a 40% drop in sales compared to the second quarter of last year.

There are forecasts that this slump will somewhat improve from the second half of the year. This is because both performance improvement and cost reduction are expected simultaneously in the duty-free shop segment, which accounts for the largest portion of sales. On the 1st, the Ministry of Land, Infrastructure and Transport, along with Incheon International Airport Corporation and Korea Airports Corporation, announced additional support measures for commercial facilities struggling due to the COVID-19 impact. The main point is a rent reduction for airport stores: 75% for small and medium enterprises and small business owners, and 50% for medium and large enterprises. Accordingly, Hotel Shilla will be able to reduce its duty-free shop rent by about 14 billion KRW per month.

Another positive factor is the increase in flights between China and South Korea. The Chinese Embassy in Korea recently stated that if the current situation of no COVID-19 confirmed cases traveling between the two countries is maintained, flight increases between the two countries will be possible from next month. This means that Chinese "daigou" (personal shoppers), who account for more than 80% of duty-free shop sales, will be able to move more actively. Seong Junwon, a researcher at Shinhan Financial Investment, said, "The hotel segment is gradually improving from the first quarter low point, and airport rent, which was a major cause of losses, will decrease from the second quarter. If the increase in flights during the summer returns the activities of Chinese daigou to normal levels, the timing of performance improvement could be faster than expected."

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