[Click eStock] "Hotel Shilla, Can It Turn Profitable This Year... Target Price Downgraded"

Korea Investment & Securities Issues 'Buy' Rating and 85,000 KRW Target Price... Closing Price on 31st Last Month Was 70,300 KRW

Shilla Duty Free Store at Changi International Airport (Photo by Asia Economy DB)

[Asia Economy Reporter Kum Bo-ryeong] As Hotel Shilla recorded a large-scale deficit in the second quarter as well, interest is growing in whether it can turn a profit within this year.

According to Korea Investment & Securities on the 3rd, Hotel Shilla's second-quarter performance showed an operating loss of 63 billion KRW, continuing the deficit following the 67 billion KRW loss in the first quarter. Sales amounted to 523 billion KRW, down 61% from the previous year. Amid a decline in tourists, sales in the duty-free sector dropped by 64% compared to the previous year. Sales in the hotel and leisure sector decreased by 35%. The operating loss in the duty-free sector reached 47 billion KRW, with an estimated 36 billion KRW attributed to domestic operations.

The deficit is expected to narrow in the third quarter compared to the second quarter. Na Eun-hae, a researcher at Korea Investment & Securities, explained, "Domestic downtown duty-free shops are gradually improving month by month, and the hotel and leisure sector is performing well. Due to COVID-19, external activities were largely restricted until May, but domestic travel demand has been recovering since June. Hotel performance in both Jeju and Seoul improved compared to the previous year in July. The domestic airport stores, which account for the largest costs, are likely to switch to a sales-linked rent payment system starting in September."

The key point to watch going forward is the 'turn to profitability.' First, the burden of rent at Incheon Airport, which was 330 billion KRW annually, has been significantly eased until February next year. The next largest rent at Singapore Changi Airport has also decreased substantially, linked to the number of travelers. Researcher Na said, "Considering the current business conditions, there will likely be no rent burden as heavy as in the past in negotiations after March next year at Incheon Airport. Hotel Lotte's duty-free division, which was the first to reduce operations at Incheon Airport, was the only one to record a profit in the first quarter this year. Among the three downtown duty-free shops, Hotel Shilla has the highest sales efficiency. Once the airport rent burden is resolved, the primary focus will be on whether it can turn a profit initially, and then on the speed of subsequent growth."

Korea Investment & Securities gave Hotel Shilla a 'Buy' rating with a target price of 85,000 KRW, down from the previous target of 93,000 KRW. Hotel Shilla's closing price on the 31st of last month was 70,300 KRW.

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