[Click e Stocks] "Emart, Corporate Value Damaged Due to Subsidiary's Poor Performance... Target Price Down"

Daishin Securities on the 15th downgraded the target price of Emart from 110,000 KRW to 95,000 KRW, citing a deterioration in corporate value due to poor performance of its subsidiaries. The investment rating was maintained at 'Buy.'

Yoo Jeong-hyun, a researcher at Daishin Securities, said, "The target price was lowered by 14% following a downward revision of next year's earnings," adding, "It is expected that the recovery of Shinsegae Construction's performance, which negatively affects this year's earnings, will not be easy in the near term, and the trend of reducing losses at SSG.com is likely to reverse to an expanding loss trend for a while, making it difficult to improve consolidated earnings."

Emart's sales and operating profit for the third quarter of this year recorded 7.7096 trillion KRW and 77.9 billion KRW respectively, falling short of market expectations (consensus). Sales were similar to the same period last year, while operating profit decreased by 23%. Researcher Yoo analyzed, "The existing store growth rate of discount stores was at the same level as the same period last year, but the closure of major large stores such as Seongsu Branch and the base effect of last year's third quarter discount store existing store growth rate (6.3%) had a negative impact," adding, "The gross margin percentage (GMP) of discount stores slightly improved compared to the previous year, and the cost ratio decreased by 2% due to reduced utility costs from shortened operating hours, resulting in a 5% increase in separate operating profit, indicating that the core business performed steadily."

Although the core business was steady, the subsidiaries' performance was poor. SSG.com's operating loss continued to decrease compared to the same period last year but expanded again compared to the previous quarter. Gmarket Global continued to post losses at the previous quarter's level. SCK experienced increased profits due to the one-time cost effect from the recall incident in the third quarter of last year, despite ongoing high cost burdens. Researcher Yoo said, "In particular, the turnaround to a loss by Shinsegae Construction had a negative impact on overall performance," adding, "Due to the poor performance of subsidiaries, there is little momentum for immediate earnings improvement."

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