[Click eStock] "GS Retail, Target Price Maintained at 29,000 Won"

Hana Securities maintained a buy rating and a target price of 29,000 KRW for GS Retail on the 4th. It evaluated GS Retail's decision to spin off its hotel business as a move to focus on core competencies and resolve the undervaluation of corporate value.

GS Retail announced the decision to spin off on the previous day. After the spin-off, the surviving company will be GS Retail, and the newly established company will be Parnas Holdings (tentative name), which was previously the hotel business division. The split ratio is 0.81 to 0.19. The split date is December 26, and the listing date for both the newly established company and the surviving company is scheduled for January 16, 2025. The purpose of the spin-off is to strengthen the core distribution business capabilities and overcome the undervaluation of corporate value by resolving the complex business structure. The ultimate goal is to enhance shareholder value. Along with the spin-off decision, the company also announced the cancellation of treasury shares. Hyunjeong Seo, a researcher at Hana Securities, analyzed that "the appropriate market capitalization will rise to about 3 trillion KRW from the pre-spin-off market capitalization of 2.4 trillion KRW."

The reason for this market capitalization adjustment is that the complex business structure had led to an undervaluation in the valuation. Although GS Retail's convenience store division was a core business with a large share of operating profit, the presence of many other business divisions made it difficult to apply a high valuation as a pure convenience store company.

The medium- to long-term growth potential of the hotel business is not high. However, in the case of Parnas Hotel, an average annual growth rate of over 10% is expected from 2025 to 2027 following the renewal of the COEX Hotel, along with high profit-generating ability based on the leasing business, so the market capitalization of 660 billion KRW is considered reasonable. Since this corporate value calculation was not included in GS Retail's valuation, it is evaluated positively for improving investment sentiment.

GS Retail is thoroughly focusing on profitability and fundamental improvements. The online business division, which had large losses, has been withdrawn, and the convenience store and supermarket divisions are expected to achieve stable profit growth by reducing unnecessary costs. Although home shopping sales will decline this year, it is a business that can consistently generate operating profits of around 100 billion KRW annually. Cost structure improvements are being confirmed, and convenience stores are also gradually recovering.

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