[Click eStock] "Shinsegae Falls Short of Market Expectations Due to Slow Duty-Free Recovery... Target Price Down"

[Asia Economy Reporter Kwon Jae-hee] Ebest Investment & Securities maintained a 'Buy' rating on Shinsegae on the 8th but lowered the target price from 380,000 KRW to 310,000 KRW.

Shinsegae's consolidated sales for the third quarter amounted to 1.9551 trillion KRW, with an operating profit of 153 billion KRW. Compared to the same period last year, these figures represent increases of 17.3% and 49.4%, respectively, but the results fell short of market expectations. The sluggish recovery in sales in the duty-free sector compared to forecasts was cited as the reason for the disappointing performance.

By business segment, women's fashion sales increased by 27% year-on-year, and men's fashion sales rose by 24%. The recovery in the fashion sector improved the gross profit margin by 0.5 percentage points. Total sales in October this year also increased by 8.9% compared to the same period last year, and it is estimated that all sectors have been growing steadily in November due to demand for winter clothing. Department store subsidiaries in Gwangju, Daegu, and Daejeon all achieved double-digit growth, and October also maintained a favorable trend.

Shinsegae DF's sales in the third quarter of this year were 856.6 billion KRW, with an operating profit of 5.1 billion KRW. This was influenced by the end of a practical simplified method of deducting the discount effect related to the payment of operating rate rent for the Incheon Airport duty-free store from selling and administrative expenses, which was applied from September 2020 to June 2022. Additionally, the operating rate rent payment method will end by the end of this year, and an effect reflecting approximately 23 billion KRW of rent for next year was preemptively accounted for, which is expected to be partially applied in the fourth quarter of this year as well. Due to the continuation of the zero-COVID policy, the recovery of demand related to China appears to be slower than expected.

Orin Ah, a researcher at Ebest Investment & Securities, stated, "Based on Shinsegae's expected 2023 performance, the current stock price is at a 5.3 times multiple, reflecting adjustments in performance due to the delayed recovery of the duty-free sector." She added, "Despite weak consumption, the department store sector remains solid, and if the situation related to China in the duty-free sector improves, the recovery resilience will stand out within the industry."

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