[Click eStock] "Shinsegae, a Buying Opportunity at Low Prices Ahead of 2021 Turnaround"

[Asia Economy Reporter Oh Ju-yeon] On the 13th, KB Securities maintained a 'Buy' rating on Shinsegae, stating that although the variation in earnings estimates is minimal, the market value (EV)/EBITDA multiples of overseas competitors used to value the duty-free business have increased. Reflecting this, they raised the target price by 10% to 330,000 KRW. They also forecast that next year's earnings could show a full turnaround, presenting a buying opportunity at a low price.

In the third quarter of this year, Shinsegae's total sales were 1.9157 trillion KRW, and operating profit was 25.1 billion KRW, down 20% and 74% respectively compared to the same period last year. Sales met consensus estimates, but operating profit fell short by 17%.

Among these, the duty-free store's net sales decreased by 45% year-on-year, and operating profit turned to a loss of -31.2 billion KRW. This was due to deteriorating profitability caused by worsening sales and increased discount rates for peddlers. Hotel occupancy rates improved somewhat from 13% in Q2 to 36%, but Central City's sales and operating profit decreased by 18% and 41% respectively, and Shinsegae International's sales and operating profit fell by 7% and 63% respectively.

However, earnings improvement is expected next year. KB Securities forecasts that Shinsegae's total sales will grow by 21% in 2021, and operating profit will increase by 314%. Of the operating profit increase, 51% is expected to come from the duty-free business, while the department store, Central City, and Shinsegae International?which suffered due to the COVID-19 pandemic?are expected to contribute 18%, 10%, and 14% respectively to the overall profit growth.

Researcher Park Shin-ae of KB Securities said, "The future profitability of the duty-free sector will depend on whether margins improve at downtown duty-free stores. This year, profitability deteriorated due to the emergency situation caused by the COVID-19 outbreak (sharp sales decline, increased transportation costs for Chinese peddlers), but as the market gradually normalizes, margins are expected to improve compared to the previous quarter."

She added, "Department store sales are rapidly normalizing, and duty-free store profits are expected to improve from the low point in Q2 compared to the previous quarter. We recommend buying at low prices in preparation for a full earnings turnaround in 2021."

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