[Click e-Stock] "Hotel Shilla Returns to Duty-Free Profitability After 7 Quarters... Target Price Raised"

On April 28, Shinhan Investment Corp. announced that it expects Hotel Shilla's operating profit to show significant improvement this year, raising its target price from 60,000 won to 77,000 won. The brokerage maintained its "Buy" investment rating.

Sanghoon Cho, a researcher at Shinhan Investment Corp., stated, "We raised our target price by 28% compared to the previous estimate, reflecting the rise in global peer group valuations, upward revisions in earnings forecasts, and the effects of cost-efficiency efforts leading to improved financial structure." He added, "Hotel Shilla has been out of the spotlight for some time due to a lack of visibility in duty-free earnings over the past several years, but the turnaround in the first quarter has proven its presence. The return of the Incheon Airport duty-free DF1 business license and the closure of the Macau Airport store are part of a strategy to focus on profitability, which is expected to significantly improve operating profit this year."

Hotel Shilla posted an operating profit of 20.4 billion won in the first quarter, successfully turning to profitability. Revenue rose to 1.0535 trillion won, up 8.4% year-on-year. Cho commented, "Hotel Shilla's first-quarter results far exceeded consensus (the average of securities firms' forecasts)," and analyzed, "Despite a sluggish business environment, improved discount rates at downtown stores and a better customer mix led to a return to profitability in the duty-free segment."

The duty-free segment recorded an operating profit of 12.2 billion won, returning to the black for the first time in seven quarters. Cho explained, "While the end of Incheon Airport rent reduction benefits expanded losses, this was offset by deferred effects from foreign airport rent reductions. At downtown stores, the discount rate improved by 2 percentage points amid an overall easing of competition, and the customer mix also improved due to an increased proportion of individual travelers."

The key issue now is whether sales can recover. Cho pointed out, "The point to watch is whether the decline in airport store sales from pulling out of Incheon Airport DF1 can be offset by recovery in online channels and higher-spending Chinese group tourists." He added, "If future growth strategies center on downtown and online duty-free stores as well as the hotel business, a valuation rerating will be possible."

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