Ahead of With Corona... Challenging Times for Hotel Shilla

3Q Turned to Profit but Results Below Expectations
Increased Costs Due to Intensified Duty-Free Shop Competition

[Asia Economy Reporter Minwoo Lee] As daily life restrictions due to COVID-19 are lifted this month, Hotel Shilla, considered a leading company in the 'with COVID' era, is faltering. This is attributed to excessive competition among duty-free shops and underwhelming performance.

As of 11:05 AM on the 1st, Hotel Shilla's stock price stood at 82,100 KRW, down 6.06% from the previous trading day. It has been steadily declining since mid-last month, falling 10.4% compared to the closing price on the 18th of last month. Considering that the KOSPI index dropped by 0.7% during the same period, this significantly underperformed the market returns.

Despite gradually moving toward the 'with COVID' phase, the company posted results below expectations. Hotel Shilla recorded consolidated sales of 968.7 billion KRW and operating profit of 20.9 billion KRW in the third quarter of this year. While sales increased by 10.1% year-on-year and operating losses turned into profits, these figures fell short of market expectations. Sales missed the consensus by 10.1%, and operating profit by 56.8%.

It is analyzed that the heavy competition to attract 'Chinese peddlers (Daigou)' in the duty-free sector, which accounts for a large portion of sales, caused this. Jeong-yeon Seo, a researcher at Shin Young Securities, explained, "Competition among domestic and international duty-free operators has intensified, pushing commission rates to record highs," adding, "The supply of some brands was also not smooth, which negatively impacted performance."

The hotel and leisure business segment recorded sales of 11.1 billion KRW and operating profit of 900 million KRW. Sales increased by 2.4% year-on-year, and operating losses turned into profits. Although social distancing measures restricted stays in some regions, reducing occupancy rates (OCC) outside Seoul, the average daily rate (ADR) significantly exceeded this, leading to a sharp increase in revenue per available room (RePAR) compared to the same period last year.

Operating conditions in the fourth quarter are expected to be similar to those in the third quarter, making the easing of competition in the duty-free sector a key factor influencing performance. Yoon-hee Choi, a researcher at Meritz Securities, forecasted, "The company's difficult operating environment will continue in the short term. However, the expectation of performance growth remains valid with the gradual resumption of overseas travel next year and the recovery of individual tourist demand."

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