Is the Difficult Period Really Over?... Hotel Shilla Anticipates Peak Travel Season [Click eStock]

Expectations for Duty-Free Profitability Rise as More Chinese Tourists Visit Korea
Hotel Demand Remains Strong... 'Operational Leverage' Effect Anticipated

With the number of Chinese tourists visiting South Korea expected to increase this year, there is analysis suggesting that Hotel Shilla's struggling duty-free business could also recover. As business conditions ahead of the peak travel season appear positive, it is expected that the company will move past its difficult period and see an overall improvement in performance.

On April 16, Mirae Asset Securities maintained its target price for Hotel Shilla at 60,000 won and its "Buy" investment rating for the same reason. The previous day's closing price was 49,850 won.

First, the duty-free business is nearing a turnaround after a prolonged slump. Last year, the duty-free segment alone posted an operating loss of 47.3 billion won. This was because Chinese tourists, who make up the main customer base for duty-free stores, saw a slower recovery in travel demand compared to other foreign nationals, and spending by foreign tourists shifted to road shops and department stores in major tourist districts.

Mirae Asset Securities expects travel demand for Korea to recover this year, led by Chinese tourists. With the dollar-yuan exchange rate stabilizing, their purchasing power at duty-free stores has also improved. The company forecasts that sales at Hotel Shilla's downtown duty-free shops will return to growth, with an operating margin reaching 5.2%. Furthermore, following the withdrawal from the Incheon Airport duty-free business this month, the annual loss of over 50 billion won from domestic airport stores will be eliminated, making it highly likely that the duty-free division will return to profitability from the second quarter onward.

The hotel business is already benefiting from increased inflows of foreign tourists to Korea, with both occupancy rate (OCC) and average daily rate (ADR) rising steadily. This trend is expected to continue throughout the year. The underperformance at the Jeju branch is easing, and the impact of maximizing fixed cost efficiency is expected to further boost operating profit through leverage effects.

Researcher Baesongyi at Mirae Asset Securities said, "Positive business conditions are expected during the peak travel season in the second and third quarters, and the Incheon Airport losses will also be eliminated." He added, "Although Hotel Shilla's earnings capacity has been significantly weakened as it swung between losses and profits for several years even after COVID-19, a full-scale rebound is expected from the second quarter of this year."

This content was produced with the assistance of AI translation services.