[Into the Stocks] BGF Retail, the Convenience Store Leader's Sprint

Q2 Operating Profit Expected to Rise
Stock Price Up for 6 Consecutive Trading Days
Industries Easily Reflecting Inflation
Benefit from Peak Season and Vacation Period Overlap

[Asia Economy Reporter Lee Jung-yoon] As social distancing measures are eased and people come out onto the streets, BGF Retail, considered the leading convenience store operator, is gaining attention. Moreover, with the peak season and vacation period coinciding, along with expected benefits from inflation, the performance outlook is bright.

As of 9:53 AM on the 18th, BGF Retail was trading at 186,000 KRW, up 0.27% from the previous trading day. Although BGF Retail has been fluctuating between rises and falls this month, it has shown an upward trend for six consecutive trading days since recording 173,000 KRW on the 23rd of last month, closing at 193,000 KRW on the 1st of this month. At one point during the day, it even rose to 199,000 KRW.

BGF Retail is expected to post strong earnings in the second quarter of this year. In particular, operating profit is anticipated to increase significantly. According to estimates, Ebest Investment & Securities projects consolidated operating profit for Q2 to rise 28.5% year-on-year to 75.4 billion KRW, NH Investment & Securities expects a 29% increase to 7.5 billion KRW, and Yuanta Securities forecasts a 37% rise to 80.5 billion KRW. All these figures exceed consensus estimates.

The improvement in BGF Retail’s performance is largely attributed to the easing of social distancing. From April to June, the impact of social distancing was significantly reduced compared to the peak of the COVID-19 pandemic over the past two years. Especially after business restrictions were lifted and the outdoor mask mandate was removed in May, foot traffic increased. According to the Ministry of Trade, Industry and Energy, convenience store purchase transactions rose by 7.2% and 12.6% year-on-year in April and May, respectively. Although the higher-than-average rainfall last month is expected to have some impact, it is considered to be limited.

The number of stores has also been increasing annually. The number of CU stores rose by 932 from 14,923 in 2020 to 15,855 last year. NH Investment & Securities predicts the number will increase to 16,655 this year, an estimated net increase of 800 stores. Ebest Investment & Securities also expects the number of new store openings in Q2 to meet the annual net increase target of 800 stores.

Experts explain that the nature of the industry, which allows for easy pass-through of price increases amid severe inflation, is also a positive factor for growth. According to the consumer price index trends released by Statistics Korea on the 5th, the consumer price index for June was 108.22 (2020=100), up 6.0% year-on-year. This marks the first time in 23 years and 7 months that the inflation rate has exceeded 6%.

Researcher Lee Haeni of Eugene Investment & Securities explained, "BGF Retail belongs to an industry where it is easy to reflect price increases. Convenience stores purchase finished products and sell them, earning commissions, so price pass-through is relatively easy. Also, due to the short consumption cycle, consumer resistance to price increases is understood to be lower." Researcher Cho Sang-hoon of Shinhan Financial Investment added, "Since convenience stores operate 24 hours and serve nearby shopping needs, consumers tend to be more understanding of price increases compared to other industries."

Although the number of new COVID-19 cases reached 26,299 on the day, indicating a resurgence, it is expected not to have a significant impact. Researcher Lee said, "Unless social distancing returns to previous levels, offline traffic is not expected to decrease as much as it did last year."

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