[Click eStock] Hyundai Department Store, Duty-Free as the Main Player "Expecting a Rebound in the Second Half"

On the 19th, Korea Investment & Securities maintained a buy rating and a target price of 80,000 KRW for Hyundai Department Store. This is because Hyundai Department Store's duty-free business is expected to smoothly turn profitable, leading to a stock price rebound in the second half of the year.

Myungjoo Kim, a researcher at Korea Investment & Securities, stated, "We believe the department store's sluggishness is already fully reflected in the stock price," adding, "Hyundai Department Store's duty-free business has continuously recorded operating losses since its entry, so the value of the duty-free business has never been highlighted." He continued, "Starting from the 618 shopping event, a significant amount of cosmetics inventory was cleared in China," emphasizing, "The Chinese cosmetics market in the second half of the year will be better than in the first half, and Hyundai Department Store's duty-free business will smoothly turn profitable."

He forecasted that Hyundai Department Store Duty Free's operating profit will reach 4.7 billion KRW in the second half of this year. Although a new duty-free store opened at Incheon Airport in July, since rent payments are based on airport passenger numbers, the rental burden is considered not heavy. Since the duty-free shops and the Korea Customs Service have been working together to improve the practice related to referral fees starting this year, the possibility of referral fees rising again in the second half is low. Researcher Kim said, "If the duty-free industry grows by more than 10-15% in the second half compared to the first half, Hyundai Duty Free can smoothly record an operating profit," adding, "Because the duty-free market was very sluggish in the first half, we estimate the Korean duty-free market will grow by 24% in the second half compared to the first half."

Hyundai Department Store's consolidated sales for the second quarter of 2023 are expected to be 1.1626 trillion KRW (a 3.3% increase), and operating profit is forecasted at 72.7 billion KRW (a 2.1% increase). While sales are expected to fall short of market expectations by 3.3%, operating profit is projected to exceed expectations by 4.3%. The department store segment is expected to achieve about 1% same-store sales growth due to a high base and increased overseas travel by domestic customers. Among the three companies, Hyundai Department Store's same-store sales growth is relatively good, as the proportion of foreign customers in some stores (The Hyundai, currently estimated at about 10%) is rapidly increasing. In 2019, the proportion of foreign customers in Hyundai Department Store's total sales was 1.5%, but it reached 2.2% in the first quarter of this year and is expected to rise to around 3.0-3.5% in the second quarter (competitors are estimated to be around 2%).

Researcher Kim noted, "The benefits to Hyundai Department Store from the recovery of foreign tourists visiting Korea are expected to continue," adding, "Despite the slow recovery of daigou sales in the duty-free business (Duty Free), due to the increase in the proportion of individual tourists (FIT) and the decline in referral fees, an operating loss of 2.7 billion KRW is expected in the second quarter."

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