Kyobo Securities said on the 18th that Hotel Shilla's decision to return the business license for Incheon Airport duty-free DF1 zone (cosmetics, perfume, liquor, tobacco) would significantly improve the performance of its duty-free business. It maintained a Buy rating and raised the target price to 64,000 won. Hotel Shilla's previous closing price was 53,000 won.
Hotel Shilla disclosed that the day before (the 18th) it decided to return the business license for Incheon Airport duty-free DF1 zone (cosmetics, perfume, liquor, tobacco). The business suspension date is Mar. 17 next year. Based on last year, the amount corresponding to the business suspension is 429.3 billion won, equivalent to 10.9% of total revenue.
Jang Min-ji, an analyst at Kyobo Securities, said, "At the time of the 2023 bidding, the DF1 zone is estimated to have been set at a rent about three times higher than DF3 (fashion, boutique), and the resulting rent burden has kept the operation in the red."
Kyobo Securities estimated Hotel Shilla's travel retail (TR) business operating loss this year at 28.3 billion won. Of this, the Incheon Airport location's loss was expected to be around 70 billion won. It also said the earnings improvement effect from the DF1 zone suspension would be reflected starting in the second quarter next year, projecting that on an annual basis, operating profit and loss could improve by more than 40 billion won. Including the inbound recovery effect, it estimated next year's TR business results would improve by more than 60 billion won from a year earlier.
Jang said, "A narrower duty-free loss is expected to also work positively for a re-rating of the hotel business," adding, "Up to now, due to earnings volatility from airport duty-free losses, the hotel business's stable profit contribution has not been fully reflected in corporate value."
The analysis is that, once operations in the DF1 zone are halted, the predictability of duty-free results will improve, and with growing investor interest, the hotel business will have greater room for revaluation.