[Click eStock] "Emart, COVID Resurgence as an Opportunity... 4Q Operating Profit Expected to Turn Positive"

[Asia Economy Reporter Oh Ju-yeon] Hana Financial Investment forecasted that Emart's operating profit will turn positive in the fourth quarter of this year. Although the increase to social distancing level 2.5 shortened discount store operating hours by 2 hours, which was expected to burden same-store sales, food demand significantly increased, resulting in a higher same-store growth rate in December compared to November.

According to Hana Financial Investment on the 29th, Emart's consolidated sales and operating profit for the fourth quarter of this year are expected to reach approximately KRW 6.355 trillion and KRW 63 billion, respectively, representing increases of 32% and KRW 73 billion (turning positive) compared to the same period last year.

In the discount store business division, the same-store growth rate is estimated to exceed 3% (October 9.1%, November 0.5%, December 1.5%), with a base effect from the previous year contributing to an increase in profit of over KRW 10 billion. Sales in new core business divisions such as specialty stores, Traders, and SSG.com are expected to increase by around 20% year-on-year, leading to a combined operating profit increase of KRW 50 billion across these three divisions, driving the turnaround in performance.

Although a decrease in profit of around KRW 20 billion is expected from Chosun Hotel and Shinsegae Food, it is anticipated that Emart24, the U.S. subsidiary, and Shinsegae TV will sufficiently offset this. The consolidated operating profit margin is estimated to improve to 1%.

In particular, food demand in December is expected to increase significantly, resulting in a higher same-store growth rate than in November.

Jongdae Park, a researcher at Hana Financial Investment, explained, "Considering that the number of holidays in December is one day less than the same month last year, the actual same-store growth rate reaches 3.5%. This is interpreted as being due to increased time spent at home, which has led to a rise in demand for home-cooked meals and food shopping."

Online food demand is expected to increase even more, with Emart Mall's growth rate in December projected to reach 60% year-on-year.

Researcher Park stated, "Unlike department stores, large marts can continue operations even at level 3 social distancing. The resurgence of COVID-19 is actually creating a favorable business environment for Emart."

He added, "Emart is gaining dominance in the domestic online food market through SSG.com, and through Traders and No Brand specialty stores, it is uniquely leading the warehouse-style large mart and private brand market, which can be considered a global retail trend, in Korea." He forecasted, "In 2021, Traders is expected to achieve 13% external growth due to normalization of new stores, and the operating profit margin is expected to rise to 2.8%."

Researcher Park commented, "The recent stock price decline appears to be due more to concerns about the COVID-19 resurgence and the concentration of demand on KOSPI leading stocks than fundamentals. Given the valuation margin, buying at a low price is effective." Accordingly, he maintained a 'Buy' investment rating and a target price of KRW 190,000.

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