[Click eStock] Shinsegae, Poor Performance Inevitable 'Target Price Downgrade'

by Lee Seonae

Published 11 Apr.2023 07:46(KST)

Heungkuk Securities announced on the 11th that it maintains a buy rating on Shinsegae but lowers the target price to 280,000 KRW due to overall weak earnings performance.

Jongryeol Park, a researcher at Heungkuk Securities, stated, "The growth rate of the luxury goods market, which performed well during the COVID-19 pandemic, is somewhat slowing down, and the real estate market downturn could negatively impact the department store sector. We need to be cautious about this." He added, "Due to the high base effect from last year, the overall earnings trend is expected to follow a 'low in the first half, high in the second half' pattern."

For the first quarter, total sales are expected to be 2.96 trillion KRW (4.3% YoY), and operating profit is projected at 141 billion KRW (-13.8% YoY), continuing the weak performance from the previous quarter. The slowdown in department store operations, including the main store, Gwangju Shinsegae, Daegu Shinsegae, and Daejeon Shinsegae, is considered the main reason for the decline in consolidated operating profit. The department store sector, which performed well during the pandemic, is also experiencing a slowdown in growth due to falling real estate prices. Although the duty-free business will inevitably see a decrease in scale due to a shift to a profitability-focused strategy, operating profit is expected to increase thanks to normalization of operating commission rates and the refund of license fees. Subsidiaries such as Shinsegae International (which is experiencing weak performance due to the termination of some imported brand licenses) and Central City (improvements in hotel occupancy, increased rental income, and recovery in ticket sales) are expected to show mixed operating results.

Researcher Park noted, "The target price was lowered due to downward revisions in earnings forecasts," adding, "One reason the stock price is not properly valued compared to earnings and valuation is the low shareholder returns."