[Click eStock] "Emart, Difficult to Improve Performance... Investment Opinion from Buy to Neutral"

First Ever Annual Deficit Recorded in 2023
Poor Performance Not Solely Due to Operating Environment and Shinsegae Construction Issues
"Difficult to Expect Performance Improvement Due to Weakened Competitiveness"

On the 15th, IBK Investment & Securities changed its investment opinion on Emart from 'Buy' to 'Neutral,' stating that performance improvement is unlikely. The target price of 70,000 won was maintained. Emart's closing price on the 14th was 78,000 won.

Nam Seong-hyun, a researcher at IBK Investment & Securities, said, "Emart's Q4 2023 performance significantly missed both market and our estimates," adding, "Although a possibility of turning to a loss was anticipated, the operating loss of 85.5 billion won is somewhat shocking." Emart's Q4 2023 sales were 7.3561 trillion won, with an operating loss of 85.5 billion won. On an annual basis, Emart recorded its first-ever loss of 46.9 billion won. Nam's analysis is that "it is difficult to attribute this solely to the Q4 operating environment or to problems in some subsidiaries."

Regarding the poor performance, he analyzed that it was due to ▲ a significant decline in discount store contributions caused by differences in holiday timing and sluggish market conditions ▲ costs incurred from provisions related to Shinsegae Construction project financing ▲ costs from closing unprofitable Emart24 stores ▲ an expanded deficit in SSG.com to maintain market share. Researcher Nam said, "In an environment where the discount store market recovery is not clear, it remains difficult to cover fixed costs, which is negative," adding, "Although the operating environment is expected to become more favorable this year due to the relaxation of distribution law regulations, high expectations are unwarranted."

The reasons for the difficulty in performance improvement include ▲ the emergence of various alternative channels after more than 10 years since the distribution law regulations ▲ no short-term expectation of consumer economy recovery ▲ weakening competitiveness in business sectors other than discount stores. Emart's competitiveness lies in its possession of offline channels covering nationwide areas. Major competitors are at a crossroads where they cannot overcome fixed cost burdens and are closing stores, and this trend is expected to continue in 2024. Researcher Nam said, "while benefits from this are expected, an objective analysis of the core business and adjustments regarding the operation of various business areas are necessary."

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