[Click eStock] Hotel Shilla, It Is Darkest Just Before Dawn

[Asia Economy Reporter Kwon Jae-hee] Shin Young Securities maintained a 'Buy' rating and a target price of 100,000 KRW for Hotel Shilla on the 7th.

Although the first-quarter performance is expected to be weak, it is anticipated that the turnaround in earnings will occur as the number of duty-free customers increases and the customer base rapidly shifts to high-margin clients.

Shin Young Securities forecasted that Hotel Shilla's first-quarter sales and operating profit will reach 804.4 billion KRW and 17.3 billion KRW, respectively. Sales are expected to increase by 10.6% year-on-year, while operating profit is projected to decrease by 34.7%.

The poor performance of Hotel Shilla is attributed to weak demand from China. Foreign duty-free sales at Hotel Shilla from January to February declined by 6.3% compared to the same period last year. The main driving force in the duty-free market is the Chinese Daigou shoppers, whose activities were subdued during the Beijing Olympics, resulting in sluggish sales. Although a recovery was expected after the Olympics, the zero-COVID policy in China caused logistics disruptions centered around Shanghai and Shenzhen, leading to continued weak performance until mid-March.

Seo Jeong-yeon, a researcher at Shin Young Securities, stated, "The duty-free industry appears to be passing through the last hurdle of a dark tunnel. Even if Hotel Shilla's first-quarter results are weak, domestic demand both online and offline is gradually recovering following the lifting of quarantine for incoming travelers. From the second half of the year, airport passenger numbers are also expected to gradually recover, potentially reaching 80% of 2019 levels by the end of the year."