[Click eStock] "BGF Retail's Defensive Stock Appeal Highlighted... Profitability Improvement to Continue"

[Asia Economy Reporter Myunghwan Lee] Hana Securities announced on the 27th that it maintains a buy rating and a target price of 220,000 KRW for BGF Retail. It also analyzed that BGF Retail's investment appeal as a defensive stock will be highlighted during the period of market uncertainty.

Hana Securities forecasts that BGF Retail's convenience store growth rate for the third quarter of this year will be around 5% compared to the same period last year. Although there was an increase in rainfall in August, it was a localized phenomenon, so the overall impact on performance is expected to be limited.

Hana Securities expects BGF Retail's total convenience store business sales growth rate to reach 13% year-on-year. This is due to the increase of more than 200 stores compared to the previous quarter, and the sales of new stores are forming at levels close to existing stores. They also diagnosed that the rise in the proportion of headquarters-leased stores has increased the sales per store and franchise commission rates, which will affect the sales growth rate.

They also foresee continued improvement in profitability. Although there were cost increases in private brand (PB) products and fixtures due to inflation, these are expected to be sufficiently offset by price increases. They also noted that the sales proportion of high-margin PB products, mainly home meal replacements and F&F categories, is rising due to product mix improvements. It was also pointed out that both the convenience store channel sales share and CU's market share are increasing in the domestic food retail market.

Hana Securities projected BGF Retail's consolidated sales for the third quarter to be 2.069 trillion KRW, a 13% increase year-on-year, and operating profit to grow 26% to 87 billion KRW. They noted that the performance momentum continues as the effects of key 2022 strategies such as product mix improvement, expansion of display space, and changes in franchisee support policies are taking full effect. Unlike other retailers, BGF Retail focuses solely on the convenience store business and strengthens its position as the number one convenience store operator, so it is expected to show the highest earnings visibility within the distribution sector.

Hana Securities evaluates that BGF Retail will show high investment appeal as a defensive stock during uncertain times. This is because the burden of cost increases is easing as international oil prices fall while food prices rise. They also expect the earnings bottom for affiliates such as Logis and BGF Food to be in the second quarter. Researcher Jongdae Park of Hana Securities stated, "(BGF Retail's) current stock price is trading at a 12-month forward price-to-earnings ratio (PER) of 14 times, making it highly attractive as a defensive stock during times of uncertainty."

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