[Click eStock] "Lotte Shopping, Visible Effects of Structural Improvement... Target Price Down"

Shinhan Investment Corp. maintained a 'Buy' rating on Lotte Shopping on the 11th, noting that the effects of structural improvement are becoming visible. However, reflecting downward revisions in earnings estimates, the target price was lowered from the previous 115,000 KRW to 95,000 KRW.

Researcher Jo Sang-hoon of Shinhan Investment Corp. explained, "We lowered the target price by 17% due to downward revisions in earnings estimates caused by prolonged poor performance of subsidiaries and a decline in peer valuation. However, it is positive that the core business is expected to perform well in the second half of the year and that the effects of structural improvement are becoming visible."

Lotte Shopping's second-quarter earnings this year fell short of market expectations (consensus). Second-quarter sales were 3.62 trillion KRW, down 7.2% year-on-year, and operating profit was 51.5 billion KRW, down 30.8%. Researcher Jo said, "Lotte Shopping's second-quarter earnings missed the consensus by 37%. Except for discount stores and supermarkets, overall performance was weak, and the significant decline in department store profits was also disappointing." Department stores saw a same-store sales growth rate of -0.3%, and operating expenses increased, resulting in a 37% drop in operating profit.

From this year, the core business is improving, and structural innovation is expected in subsidiaries. Researcher Jo analyzed, "Following the low growth trend of the distribution industry, most channels showed poor performance, and impairment losses have occurred annually, resulting in five consecutive years of net losses since 2017. Despite a high base burden, department stores are expected to perform well in the second half, and discount stores and supermarkets are expected to improve inefficiencies through organizational integration and cost ratio improvements. Home shopping and Hi-Mart are scheduled for structural innovation to improve their business structure."

To improve valuation, which is at historically low levels, sustained strong core business performance is necessary. Researcher Jo stated, "The key to valuation reappraisal is the sustainability of strong core business performance, the visibility of restructuring effects, and the restoration of trust in the book value."

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