[Click eStock] "Hotel Shilla, Worst Phase Over... Gradual Improvement Expected"

[Asia Economy Reporter Hwang Yoon-joo] Yuanta Securities stated on the 1st that gradual improvement is expected for Hotel Shilla due to China's normalization process and the recovery of outbound travel. Accordingly, they maintained a 'Buy' investment rating and a target price of 95,000 KRW.

Lee Jin-hyeop, a researcher at Yuanta Securities, said, "The second-quarter performance exceeded consensus thanks to the hotel's results."

Hotel Shilla's consolidated sales for the second quarter increased by 22% year-on-year to 1.1659 trillion KRW, and operating profit decreased by 7% to 43.2 billion KRW, surpassing consensus estimates.

The duty-free (TR) division's operating profit sharply declined by 69% to 14.8 billion KRW, showing poor performance. The researcher estimated, "Excluding accounting factors, the actual merchandise transaction volume in the second quarter likely recorded a year-on-year contraction in line with market conditions," and analyzed, "This was due to continued impacts such as city lockdowns in China, which caused difficulties in operations." The increased bargaining power of the daigou amid the challenging business environment continued to burden profitability.

The hotel & leisure business division turned to operating profit (24.8 billion KRW). The researcher explained, "There were one-time gains such as the temporary recognition of brand fees related to consignment sales, but even excluding these, the strong demand-driven increases in OCC (Occupancy Rate) and ADR (Average Daily Rate), along with the recovery of banquet/food and beverage sales due to reopening, were the drivers of the strong performance."

The researcher diagnosed, "The impact of city lockdowns in China continued through the second quarter. Although localized city lockdowns and releases are still ongoing in the current third quarter, China's logistics network is understood to have recovered up to 90% of normal levels, and restrictions on the movement of the main customers, daigou, are easing."

He added, "Although slower than initially expected, the recovery of domestic outbound travel is also emerging, and with the duty-free allowance expected to increase, it is judged that the worst phase for the duty-free store industry has passed."

He continued, "While a clear momentum for stock price increases is not yet visible, gradual improvement is expected with China's normalization process and the recovery of outbound travel, so a long-term buy perspective strategy will be effective."

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