Stronger in Recession... Convenience Store Stocks' Target Prices Keep Rising

Securities Industry and Convenience Store Sector Estimated to Grow 7% Next Year
Stable Outlook Due to Reopening and Other Factors

[Image source=Yonhap News]

[Asia Economy Reporter Kwon Jae-hee] Amid an ultra-tight era marked by high inflation and high interest rates, convenience store-related stocks, which are resilient even in a recession, are gaining attention. This is because alternative consumption such as cost-effective private brand (PB) products is possible due to economic contraction, and the demographic structure is shifting to single-person households, which is favorable for the convenience store industry.

According to the Korea Exchange KOSPI market on the 1st, BGF Retail's stock price has risen nearly 35% from the lowest point of 152,500 KRW on September 14th over the past three months. GS Retail also increased by nearly 27% from the low of 23,550 KRW on October 17th.

Convenience store stocks began to attract attention after the COVID-19 pandemic. Although COVID-19 restrictions were eased mainly in April and May, recovery to pre-pandemic levels occurred from September, and normalization due to reopening is expected to continue until the first half of next year, leading to stable growth in the convenience store industry. The significant increase in convenience store lunchbox sales due to rising consumer prices is also noteworthy. The average monthly sales growth rate of lunchboxes for the four major convenience store companies in the first half of this year was 28.1%. Recently, these stocks have also shown strength as beneficiaries of the World Cup.

The third-quarter performance is also strong. BGF Retail recorded sales of 2.0557 trillion KRW, an 11.9% increase year-on-year, and operating profit of 91.5 billion KRW, a 31.7% increase. This exceeded market consensus and marked the highest quarterly performance ever. GS Retail also posted sales of 2.956 trillion KRW in the third quarter, up 9.1% compared to the same period last year.

In the securities industry, convenience store stocks are expected to continue growing steadily next year, with recommendations to 'increase weight' and upward revisions of target prices. This is because the demographic structure is shifting to single-person households, which is favorable for the convenience store sector, and alternative consumption such as cost-effective PB products is possible amid economic contraction. NH Investment & Securities raised BGF Retail's target price from 240,000 KRW to 250,000 KRW, and Daishin Securities raised it from 224,000 KRW to 240,000 KRW. Other firms such as Shinhan Investment Corp. (220,000 KRW → 240,000 KRW) and eBest Investment & Securities (240,000 KRW → 260,000 KRW) also raised their target prices. For GS Retail, Shinhan Investment Corp. raised the target from 31,000 KRW to 33,000 KRW, and eBest Investment & Securities raised it from 29,000 KRW to 32,000 KRW.

Kim Myung-joo, a researcher at Korea Investment & Securities, analyzed, "The growth rate of the convenience store industry next year is estimated at 7%, which is higher than the 5.3% in 2019 before the COVID-19 outbreak, due to the recovery of floating population from reopening and normalization of daily life, as well as stable increases in the number of stores."

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