[Click eStock] "Hotel Shilla Faces Tough Q2... Expected to Improve in Mid to Long Term"

[Asia Economy Reporter Myunghwan Lee] Hanwha Investment & Securities announced on the 22nd that it maintains a buy rating and a target price of 92,000 KRW for Hotel Shilla. Although poor performance is expected in the second quarter due to the industry conditions, it is anticipated to gradually improve in the second half of the year.

Hanwha Investment & Securities estimates Hotel Shilla's second-quarter sales this year to be 1.1066 trillion KRW, a 16.1% increase compared to the same period last year, while operating profit is expected to decrease by 65% to 16.2 billion KRW. The poor trend is expected to continue following the first quarter.

In the duty-free sector, it is analyzed that profitability will not improve significantly as commission fees increased compared to the first quarter. Hanwha Investment & Securities estimated that the duty-free commission rate in the second quarter slightly increased compared to the first quarter. This is explained as a strategic response to the decrease in sales due to the depreciation of the yuan amid limited demand growth. For this reason, the increase in costs in the second quarter is considered a temporary factor.

The lack of a clear recovery in sales volume due to China's zero-COVID policy and sluggish industry conditions is also a weakness. However, in the hotel and leisure business division, it is expected that both occupancy rates and average spending per customer will rise due to increased domestic travel demand and the easing of social distancing measures.

Hanwha Investment & Securities analyzed that industry conditions are likely to gradually improve in the second half of the year. This is because the Chinese cosmetics market remains sluggish and it is difficult to expect an influx of foreign tourists. It also pointed out that it is unlikely for commission rates to normalize in the short term.

Nam Seonghyun, a researcher at Hanwha Investment & Securities, said, "Improvement in operating performance will not be easy until this year," but added, "Considering that the current duty-free situation is not normal and the global outbound market is gradually reopening, performance improvement is possible in the mid to long term."

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