[Click eStock] "BGF Retail, Benefiting from Reopening and Inflation with Increased Store Opening Demand... Target Price Up"

[Asia Economy Reporter Kwon Jaehee] Kiwoom Securities maintained its 'Buy' rating on BGF Retail on the 30th and raised the target price to 260,000 KRW.

BGF Retail's consolidated sales for the second quarter are expected to be 1.94 trillion KRW, with an operating profit of 74.3 billion KRW. This represents an increase of 14% and 27%, respectively, compared to the same period last year. Strong performance is anticipated due to increased foot traffic following the lifting of social distancing measures, benefits from rising processed food prices, and increased store opening demand. The same-store sales growth rate for the second quarter is estimated at 4.5% (6% excluding tobacco). The burden of increased selling and administrative expenses due to inflation is expected to be sufficiently offset by strong sales and improved product mix.

The background of this strong performance is the sharp increase in convenience store sales driven by reopening and inflation benefits. Sales growth is observed across all categories including tobacco, processed foods, and ready-to-eat meals due to price increases and higher sales volume. In particular, the sales growth rate of ready-to-eat meals, which had been sluggish since the COVID-19 outbreak, is rebounding sharply, strengthening medium- to long-term growth potential. Additionally, store opening demand is also recovering. According to data from the Ministry of Trade, Industry and Energy, the recent growth rate of convenience store outlets has shown a steady upward trend. Especially, the monthly net increase in stores this year is developing in a pattern similar to the strong store growth seen from 2015 to 2017. It is estimated that store opening demand is rising this year due to accumulated entrepreneurial demand over the past two years and the recent rebound in convenience store sales.

Park Sangjun, a researcher at Kiwoom Securities, said, "We raised both sales and operating profit estimates for BGF Retail because the reopening and inflation benefits combined with store opening demand are expected to lead to a sharp improvement in overall performance," adding, "We maintain our top pick opinion within the distribution sector."

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