[Click eStock] "Shinsegae, Expectation of Earnings Recovery from Q2... Target Price Up"

Hana Securities announced on the 10th that it has raised the target price for Shinsegae from 170,000 KRW to 190,000 KRW following an upward revision of earnings forecasts and appropriate valuation. The investment rating was maintained as 'Buy.'

Seohyun Jeong, a researcher at Hana Securities, stated, "With growing expectations for consumer recovery, Shinsegae is expected to be a stable and reasonable investment alternative in the retail sector," expressing this judgment.

Shinsegae's consolidated sales for the first quarter are estimated at 1.6867 trillion KRW, a 5% increase compared to the same period last year, while operating profit is expected to decrease by 17% to 135.7 billion KRW. The performance is projected to meet market expectations.

The department store segment was analyzed to have a same-store sales growth rate of around 0% compared to the previous year. Monthly figures showed double-digit growth of 10% in January, but February and March recorded declines of -7% and -2.5%, respectively. Accordingly, the department store's first-quarter operating profit is expected to decrease by 3% year-on-year. Researcher Seohyun Jeong analyzed, "The proportion of luxury goods, which are a low-margin category, increased compared to high-margin items, and the burden of selling and administrative expenses such as depreciation also grew."

The duty-free store segment is expected to see improvements in both sales and profits compared to the previous quarter. As competitors reduced wholesale transactions, downtown store sales increased, and due to improved discount rates and the effect of luxury brand entries at airport stores, the operating loss is expected to shrink to around 9 billion KRW. This marks an improvement of 26.5 billion KRW compared to the previous quarter. However, subsidiaries Shinsegae International and Central City are expected to experience profit declines.

From the second quarter, earnings momentum is expected to become more prominent. The department store segment will benefit from renewal effects such as the opening of the main store luxury hall 'The Heritage' and the renewal of the Gangnam branch food hall, while the duty-free store is anticipated to gradually reduce its deficit due to eased competition and fixed cost reductions.

He stated, "Although profit declines in the duty-free segment are inevitable until the first half, earnings momentum will turn positive from the third quarter," and evaluated, "The annual operating profit this year is estimated to reach 600 billion KRW, and the current stock price is only about 6 times the 12-month forward price-to-earnings ratio (PER), indicating strong valuation appeal."

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