[Click eStock] "Hotel Shilla, Noticeable Profitability Improvement in Downtown Branch"

Hana Securities has raised the target price for Hotel Shilla from 43,000 KRW to 45,000 KRW, anticipating gradual profitability improvement as competition in downtown duty-free shops eases. The investment rating was maintained at 'Buy.'

In the first quarter of this year, Hotel Shilla is estimated to have recorded consolidated sales of 951.6 billion KRW (a 3% decrease year-on-year) and an operating loss of 7.8 billion KRW. An operating loss of 13.7 billion KRW in the duty-free sector was reflected. However, the operating profit margin of downtown stores is expected to rise to around 5%, showing a significant improvement in losses compared to the previous quarter.

Seohyun Jeong, a researcher at Hana Securities, explained, "Most losses are still occurring at domestic and international airport duty-free shops," adding, "With increased traffic, airport sales are expected to grow by more than 10% year-on-year, but rental costs will also rise proportionally, resulting in an estimated loss of around 30 billion KRW." The hotel and leisure sector is also expected to see sales and operating profit decline by 1% and 5%, respectively, due to the off-season and poor performance of Jeju hotels.

However, the easing of competition in downtown duty-free shops is seen as a positive factor for Hotel Shilla. Researcher Seohyun Jeong noted, "Lotte Duty Free has completely halted transactions with large Daigou, and Hyundai Department Store has closed its Dongdaemun duty-free shop, indicating structural adjustments in the duty-free industry," adding, "All major operators are focusing on eliminating inefficient sales. With reduced competition and improved customer mix, Hotel Shilla's downtown store margins are expected to naturally improve."

Additionally, Seohyun Jeong stated, "Although this is not a performance turnaround due to mid- to long-term demand improvement, there are promising momentum factors such as visa-free group tours, increased inbound tourism, and recovery of the Chinese economy," concluding, "The visibility of an annual operating profit turnaround by 2025 has increased."

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