BGF Retail, 4th Quarter Earnings with Low Expectations

[Asia Economy Reporter Song Hwajeong] BGF Retail is expected to fall short of expectations for its fourth-quarter performance due to the impact of the novel coronavirus infection (COVID-19) and other factors.

According to NH Investment & Securities on the 28th, the operating conditions of convenience stores in the fourth quarter are not favorable. In October, the growth rate of existing stores was sluggish compared to market expectations due to early cold weather, and recently, as social distancing in the metropolitan area was raised to level 2, concerns about sales at stores in tourist areas, entertainment districts, and schools and academies have been increasing.

Lee Ji-young, a researcher at NH Investment & Securities, analyzed, "In particular, BGF Retail may be more negatively affected because the proportion of sales from stores in special locations is higher compared to competitors," adding, "Since its consolidated subsidiary BGF Food recently established a central kitchen, if sales of home meal replacements (HMR) in schools or academy areas decline, it could significantly impact profits and losses."

Growth through new store openings is expected to continue next year as well. This is because demand for new stores is strong due to the collapse of self-employment and the resulting industry shifts. However, it is expected to be difficult for the growth rate of existing stores to rebound meaningfully. The researcher explained, "Recently, the speed of convenience store openings has accelerated, which may cause store interference effects, and the high growth of the delivery and quick commerce markets is also a threat." He added, "Of course, there will be no noticeable negative impact on the company's actual performance, but the logic behind the high valuation of the convenience store industry that has been maintained so far is likely to be diluted," and "As a result, the momentum of stock price increases may also slow down."

NH Investment & Securities lowered BGF Retail's target stock price from 160,000 won to 145,000 won and changed the investment opinion to 'Hold.' The researcher evaluated, "Due to the rapid spread of delivery culture, the expectation of increased HMR sales from one- to two-person households, which is a major investment point for convenience stores, is not as strong as before," adding, "In the case of BGF Retail, the delivery and mobile business strategies are still not concrete."

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