[Click eStock] "Emart, High Possibility of Earnings Improvement from 3Q"…Investment Rating Upgraded

On the 23rd, IBK Investment & Securities upgraded its investment opinion on Emart from Neutral to Short-term Buy (Trading Buy) due to a decline in the stock price, while maintaining the target price at 80,000 KRW.

Emart's consolidated sales for the second quarter of this year recorded 7.2711 trillion KRW, a 1.7% increase compared to the same period last year, with an operating loss of 53 billion KRW.

Nam Seong-hyun, a researcher at IBK Investment & Securities, explained, "Emart's second-quarter performance significantly missed initial expectations," adding, "The underperformance was due to poor results from discount stores and Traders, increased fixed costs, and the burden from higher cost ratios at Shinsegae Construction."

He continued, "Although the second-quarter results were negative, it is noteworthy that there were signs of potential improvement in the core business and major subsidiaries' performance," stating, "The online business division, a key subsidiary, showed a rapid reduction in losses, and the existing store slump at Traders is easing." Researcher Nam also added, "The cost burden at SCK Company is easing, and nearby distribution networks such as Emart24 and Everyday, as well as hotel operations, are showing positive results."

The second quarter's poor performance was analyzed to be due to the impact of inflation and worsening consumer sentiment, combined with store operations aimed at improving profitability, store shutdowns under deleveraging strategies, and increased fixed costs. However, considering factors such as controlling selling and administrative expenses through fixed cost reduction, reopening of the Ilsan KINTEX sales network, and SCK Company entering a base period from the third quarter, the possibility of performance improvement is considered high.

However, it was pointed out that risk factors need to be reviewed. Researcher Nam stated, "Emart's financial losses in the second quarter amounted to 47.5 billion KRW, rapidly increasing compared to the same period last year," adding, "It should be recognized that the deleveraging strategy through asset sales is difficult to realize in the short term." He further explained, "While improvements in discount store operations are expected, the impact of last year's high base and increased fixed costs must be taken into account."

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