[Click eStock] "Shinsegae, Target Price Down Due to New Business Entry Risks"

[Asia Economy Reporter Song Hwajeong] Samsung Securities on the 15th lowered the target price for Shinsegae from 400,000 KRW to 357,000 KRW, reflecting financial uncertainties due to new business expansion. The investment opinion was maintained as 'Buy.'

Park Eunkyung, a researcher at Samsung Securities, said, "Shinsegae's stock price has been stuck in a box range since mid-June when the possibility of acquiring Hugel through M&A was raised," adding, "Whether Shinsegae will acquire Hugel remains to be seen, but since we confirmed Shinsegae's strong intention to expand new businesses, we believe financial uncertainties should be reflected in the corporate value evaluation, which is why we lowered the target price."

Shinsegae's second-quarter earnings are expected to exceed market expectations. Samsung Securities estimated Shinsegae's second-quarter sales to increase by 32.5% year-on-year to 1.34 trillion KRW, with operating profit turning positive at 78.5 billion KRW. Researcher Park said, "The operating profit margin is expected to record 5.8%, exceeding the market consensus by 6% based on operating profit."

The department store segment is expected to record total sales of 1.07 trillion KRW and operating profit of 37 billion KRW in the second quarter. These figures represent increases of 14.5% and 158.2%, respectively, compared to the same period last year. While overseas luxury goods maintained strong growth without surprises, fashion sales, which rebounded strongly in April due to unfavorable weather, are estimated to have shown a downward trend in May and June.

The duty-free segment is expected to post second-quarter sales of 529.4 billion KRW, a 70% increase year-on-year, and operating profit of 22.3 billion KRW, turning positive. Researcher Park analyzed, "Due to the change in payment method for airport rent, strong demand, and eased competition among duty-free operators, favorable operating profits were likely realized in the second quarter following the first quarter."

Shinsegae International is estimated to have second-quarter sales of 322.2 billion KRW, a 12% increase year-on-year, and operating profit of 15.4 billion KRW, turning positive. Researcher Park explained, "Operating profit is expected to slightly miss the consensus," adding, "This reflects a downward revision of earnings forecasts for the highly profitable overseas fashion sector due to weaker-than-expected apparel demand in May and June."

Samsung Securities projected Shinsegae's annual sales this year to increase by 21% year-on-year to 5.79 trillion KRW, with operating profit rising 441% to 478.8 billion KRW. Researcher Park said, "This is a 2% upward revision of the existing operating profit forecast," explaining, "Despite an unfavorable operating environment in the second and third quarters, we expect deferred demand to strongly emerge in the fourth quarter alongside vaccine distribution." The operating profit forecast for next year was lowered by 6.4% to 572.4 billion KRW. Researcher Park explained, "The timing of the rebound in service consumption was adjusted from the end of 2021 to mid-2022," adding, "Despite continued strong performance in department stores and international segments, the forecast for duty-free operating profit in 2022 was lowered because foreign entry is expected to be free only by mid-2022."

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