"Department Stores Lead and Discount Stores Follow"... Lotte Shopping Enters Earnings Improvement Cycle [Click e-Stock]

On May 13, NH Investment & Securities raised its target price for Lotte Shopping from 133,000 won to 190,000 won, noting that the performance of its major business divisions, led by department stores, is improving across the board. The investment opinion remains 'Buy'.

Younghun Joo, an analyst at NH Investment & Securities, stated in a report released on this day, "The target price was calculated by applying a price-to-book ratio (PBR) of 0.32 times to this year’s expected equity capital. This corresponds to the average level seen in 2019–2020, before the sector’s valuation discount became pronounced, and marks the first strong earnings improvement cycle since Lotte Group's transition to a holding company structure."

Lotte Shopping posted revenue of 3.5816 trillion won in the first quarter of this year, up 3.6% from the same period last year, and operating profit of 252.9 billion won, a 70.6% increase, significantly exceeding market expectations. In particular, same-store sales growth for department stores reached 13%. The steep improvement in profitability is presumed to be driven by growth in high-margin fashion sales. While discount stores achieved a modest sales rebound, contrary to last year, the recently announced shutdown of 37 Homeplus locations is expected to trigger a full-fledged beneficiary effect for Lotte Shopping.

Analyst Joo commented, "Despite the recent rise in share price, the PBR remains extremely low. If the company can continue to demonstrate improved performance through upcoming quarterly earnings announcements, further valuation upgrades are possible."