[Click eStock] "Emart, Discount Store Industry Rebound... Stock Price Rise Expected"

Korea Investment & Securities Researcher

[Asia Economy Reporter Minji Lee] Korea Investment & Securities maintained a buy rating and a target price of 250,000 KRW for Emart on the 6th, based on the expectation of a stock price increase due to a rebound in the discount store market.

Emart's consolidated sales for the third quarter are expected to reach 6.3544 trillion KRW, a 7.6% increase compared to the same period last year. Operating profit is forecasted to decrease by 4.2% to 144.9 billion KRW. This is expected to fall short of market expectations due to poor performance in discount stores caused by disaster relief funds and a high base effect.

The same-store sales growth rate for discount stores in the third quarter is expected to be around 3%, and SSG.com’s deficit is anticipated to remain at the second quarter level, while market share is expected to continue recovering following the second quarter.

Myungjoo Kim, a researcher at Korea Investment & Securities, said, “Despite the recent low valuation, Emart’s stock price has underperformed the market due to the expected poor performance of discount stores in the third quarter and the absence of positive factors,” adding, “After the sales trend announcements of major retailers in August, skepticism about a rebound in the discount store industry has increased.”

The poor performance of discount stores in the third quarter is temporary, caused by a high base effect, disaster relief funds, and stabilization of fresh food prices. Considering consumer price inflation and the high online penetration rate in non-food categories, a rebound in the discount store industry in 2022 is predicted. Along with the expectation of an industry rebound, Emart’s stock price is also expected to recover. SSG.com is likely to launch a paid membership by the end of the year, and since it does not have its own delivery personnel, it is expected to leverage affiliates to offer extensive discounts and differentiated services as competitive advantages.

Researcher Kim analyzed, “Assuming that 20% of discount store customers are paid membership customers and their average spending per visit is 20% higher than existing customers, Emart’s same-store sales could increase by an additional 3%.”

Emart’s price-to-earnings ratio (PER) for next year is expected to decrease to 7.8 times, significantly reducing the burden. Although a short-term stock price adjustment is expected due to the poor performance of the discount store industry and Emart in the third quarter, a short-term rebound in Emart’s stock price is anticipated along with the industry’s recovery. Researcher Kim stated, “The concretization of SSG.com’s IPO and the launch of the membership program are positive factors for future stock price rebounds,” and added, “We maintain Emart as our top pick in the retail industry.”

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