[Click e-Stock] "BGF Retail, Focus on Subsidiary Earnings Improvement... Target Price Up"

Target Price Raised from 145,000 Won to 190,000 Won

On the 11th, IBK Investment & Securities stated that it is necessary to pay attention to the earnings improvement of BGF Retail's consolidated subsidiaries, and raised its target price from 145,000 won to 190,000 won. It maintained its investment rating of 'Buy'.

Nam Seonghyun, an analyst at IBK Investment & Securities, said, "The change in the target price was made in line with the adjustment of our earnings estimates," adding, "The earnings of key subsidiaries Logistics and Humannet are improving, and it is worth noting that the competitiveness of these subsidiaries is expanding at a time when the overall convenience store industry is slowing compared to the past."

BGF Retail's earnings for the fourth quarter of last year exceeded market expectations. On a consolidated basis, fourth-quarter revenue came in at 2.2923 trillion won, up 3.4% year-on-year, while operating profit rose 24.3% to 64.2 billion won. Nam said, "This exceeded our operating profit estimate of 59 billion won by about 10%," and analyzed, "There were three drivers behind the fourth-quarter earnings growth: an effect of about 5 billion won from the improvement in the merchandise purchase rate, an effect of 5 billion won from changes in bonus payments, and an effect of 2.8 billion won from the earnings improvement of consolidated subsidiaries." The improvement in the merchandise purchase rate led to growth in food and processed food, which is interpreted as the result of a strategic allocation of product categories. The sales proportion of food and processed food rose by 0.3 percentage points each, to 14.4% and 43.6%, respectively. Nam said, "We believe the merchandise purchase rate improved as the proportion of relatively high-margin products increased, while the share of low-margin products such as cigarettes declined."

The operating profits of the subsidiaries all improved year-on-year, with Logistics posting 5.2 billion won, Food 500 million won, Humannet 1.2 billion won, and Network 3.2 billion won. Nam pointed out, "In particular, in the case of Logistics and Humannet, growth in non-convenience store sales was the driving force, and this shows results stemming from the expansion of external competitiveness," adding, "This can be interpreted as an indication that they are expanding their competitiveness after having first grown through internal channels."

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