Hana Securities adjusted the target price of Shinsegae Food from the previous 60,000 won to 50,000 won on the 25th. While profitability is on a recovery trend, analysis suggests that additional medium- to long-term growth drivers need to be secured.
Shinsegae Food recorded first-quarter revenue of 358.6 billion won and operating profit of 7.9 billion won this year. This represents a decrease of 6.1% and an increase of 69.7% compared to the previous year, respectively. In the institutional sector of school meals, there was a 10.4% decrease due to a base effect stemming from the termination of large business clients. Revenue in the dining sector decreased by 2%, while the manufacturing and food ingredient sector saw an 8.4% decline.
Despite the decline in first-quarter revenue, profitability improved as de-marketing was implemented across all divisions. De-marketing is a strategy that intentionally reduces customer demand to increase profitability.
In the second quarter, profit and loss-centered management due to de-marketing is expected to continue. However, the base effect of last year's strong performance is likely to result in a relative decline in operating profit as well. For the second quarter of this year, revenue is estimated to be 378 billion won, and operating profit is projected at 9.2 billion won, representing decreases of 4% and 4.8%, respectively, compared to the previous year.
Shim Eun-joo, a researcher at Hana Securities, noted, "As efficiency measures for strengthening profitability are about to begin in earnest, operating profit is expected to recover to 30 billion won this year." However, she added, "Considering the past performance where annual profit and loss reached 40 billion won, it is time to seek answers for medium- to long-term growth drivers outside of the No Brand Burger (NBB) franchise business."