[Into the Stocks] Lotte Shopping, Short Selling Ratio Increased but...

Increase in Lotte Shopping Short Selling Transactions
Short Selling Balance Also at Highest Level Since Resumption
However, Stock Price May Rise Due to Earnings Improvement Prospects

[Asia Economy Reporter Hwang Junho] Lotte Shopping's stock price stands at a crossroads. The proportion of short-selling transactions among total trades surged to 34%, increasing downward pressure. The failure to acquire eBay Korea and the inability to present a clear vision for the e-commerce business are weighing down the stock price. On the other hand, earnings hit hard by COVID-19 are showing signs of recovery due to vaccinations. Regarding Lotte Shopping at this crossroads, the securities industry is cautiously recommending a buy.

Betting on Lotte Shopping's Decline

Lotte Shopping Korea Seafood Expo

According to the Korea Exchange on the 24th, the short-selling transaction amount for Lotte Shopping was 5.488 billion KRW. On that day, 34.66% of the transaction amount was from short-selling trades. Short selling refers to borrowing stocks to sell them, then repurchasing them at a lower price to return the borrowed shares. Typically, when a stock price decline is expected, the short-selling balance increases. The short-selling balance is about 34.9 billion KRW, which is approximately 1.06% compared to the market capitalization of 3.2814 trillion KRW.

Among KOSPI 200 stocks, it ranks 42nd in terms of short-selling balance. The short-selling balance increased after a setback in the acquisition battle for eBay Korea, which owns Gmarket and Auction. On the 16th, when news broke that Shinsegae Group's E-Mart would acquire eBay, the balance rose to 37.5 billion KRW. The stock price, which had surpassed 120,000 KRW due to acquisition expectations, fell back to the 110,000 KRW range. The current stock price is 115,000 KRW. Compared to early this month, the stock price has dropped by about 6,500 KRW.

After losing the eBay acquisition battle, the failure to present a blueprint for the e-commerce business is also seen as a cause for the increase in short selling. Lotte Shopping's e-commerce division recorded transaction volume of 7.6 trillion KRW last year, a 7% growth compared to the previous year, but only achieved 4.3% growth in the first quarter of this year. Considering that the total online shopping transaction volume grew by about 21% during the same period, this is a sluggish performance.

However, the fact that the spark for M&A has been kept alive is a positive aspect. On the 18th, Lotte Shopping Vice Chairman Kang Hee-tae stated via the company intranet, "We will closely review future synergies and valuation appropriateness and actively participate in mergers and acquisitions (M&A) deemed necessary." They have also secured funds. Since last year, Lotte Shopping has been conducting business restructuring and asset sales, and last month transferred ownership stakes (land and buildings) and related movable property stakes (concert hall interiors, fixtures) of World Tower and World Mall to Lotte Corporation. The transfer price (831.3 billion KRW) plus the cash holdings are estimated to total about 3.2 trillion KRW.

Securities Firms Maintain Buy Ratings

Meanwhile, the securities industry expects a turnaround in retail stocks this year due to the expansion of COVID-19 vaccinations. They anticipate performance improvements centered on department stores as consumer sentiment recovers strongly following the base effect from last year's COVID-19 impact.

Hi Investment & Securities noted that existing department store locations recorded growth rates of 18% in the first quarter and 20% in April domestically, showing strong growth. They also evaluated that the overseas segment is experiencing a base effect from last year's COVID-19 impact. Accordingly, they forecast no difficulty in department store earnings recovering to 2019 levels. They expect overall corporate profits to improve as the department store business accounts for 94% of consolidated operating profit (based on last year).

Yuanta Securities projected that Lotte ON could expand growth based on the lowered base since its launch in April last year. Lotte Cultureworks is expected to improve earnings following the rapidly recovering box office performance from May.

IBK Investment & Securities expects Lotte Shopping to record consolidated sales of approximately 5.382 trillion KRW and net sales of about 4.019 trillion KRW in the second quarter of this year. Operating profit is forecasted to reach 28 billion KRW, a 1914% increase compared to the previous year, and net losses are expected to turn into profits.

Researcher An Ji-young from this securities firm’s research center said, "The reason operating profit estimates are lower than the market is due to a slight increase in property taxes (estimated at 124.2 billion KRW) and continued losses in the e-commerce segment despite improvements in department stores, large marts, and Cultureworks." However, she explained, "The core businesses such as department stores, marts, supermarkets, and Cultureworks are emerging from their lowest points, and operating recovery compared to the previous year and first quarter is becoming visible, which is positive."

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