[Click eStock] "GS Retail, Excessive Investment Cost Burden"... Downgrade of Investment Opinion and Target Price

[Asia Economy Reporter Lee Jung-yoon] Yuanta Securities on the 6th downgraded its investment opinion on GS Retail from Buy to Hold and lowered the target price from 38,000 KRW to 29,000 KRW, citing that the company's operating profit in the first quarter of this year significantly missed consensus estimates and that a second consecutive quarter of earnings shock occurred.

GS Retail's sales in the first quarter of this year recorded 2.5985 trillion KRW, a 23.7% increase compared to the previous year. Operating profit decreased by 27.2% to 27.3 billion KRW, falling short of the estimated 65.9 billion KRW. Jin-hyeop Lee, a researcher at Yuanta Securities, explained, "If we look only at the operating performance of major business units such as convenience stores, supermarkets, and hotels, there is clear improvement," adding, "However, losses in new businesses such as quick commerce and pet-related sectors have expanded, and the profitability of major business units like convenience stores and supermarkets has deteriorated due to investments related to new businesses." He continued, "In the case of convenience stores, despite improvements in same-store sales growth and gross profit margin (GPM), operating profit decreased by about 19% compared to the previous year."

Although the reopening has led to an improvement in the convenience store sector's business conditions, investments in new businesses are analyzed to have hindered GS Retail. The researcher stated, "The first quarter's results raised doubts about whether profit improvement can occur even if the operating environment of convenience stores improves," explaining, "Because the simultaneous and multiple ongoing investments in new businesses are judged to be a burden on the profitability of the core business."

Furthermore, he added, "In the pet business, GS Retail holds About Pet, the second-largest company, as a subsidiary and has secured control by investing in Pet Friends, the largest company. However, there are questions about whether it can achieve results as a latecomer in the grocery e-commerce market, and whether the investments in the quick commerce business are excessive compared to the current and potential market size."

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