Mirae Asset Securities said on the 1st that Shinsegae's earnings are expected to grow next year as the reopening of the Gangnam branch and the main store, which had been under renovation, overlaps with a base effect. It maintained a Buy rating and raised the target price to 240,000 won from 210,000 won. Shinsegae's previous day's closing price was 187,100 won.
Mirae Asset Securities projected Shinsegae's third-quarter results this year at 1.6844 trillion won in net sales and 100.1 billion won in operating profit. Although each figure is up 9% and 8%, respectively, from a year earlier, they are expected to slightly miss market expectations.
On this, Bae, an analyst at Mirae Asset Securities, said, "The weakness of some subsidiaries such as Shinsegae International and Casamia had an impact," and added, "Results for the core businesses of department stores and duty-free shops are expected to be in line with expectations."
For department store results, the analyst expected 1.7434 trillion won in gross sales and 82.8 billion won in operating profit. Bae explained, "Due to the impact of major store renovations, sales growth and margins will be weaker than the sector overall, but as the Gangnam branch's renovation was completed during the quarter, the gap appears to be gradually narrowing."
For the duty-free business, the company was forecast to post 611.7 billion won in net sales and a 5.1 billion won operating loss. Due to higher lease fees at Incheon Airport, the loss is expected to widen slightly from the previous quarter.
Regarding Hotel Shilla's recent decision to withdraw from Incheon Airport's duty-free shop, Bae explained, "There is a possibility that Shinsegae could benefit from a rival's exit," adding, "While it may not reduce losses as dramatically as exiting the business, the operating environment is expected to improve gradually."
Another positive factor is that the Gangnam branch and the main store, which had been under renovation throughout the year, are slated to reopen in the third and fourth quarters, respectively. Bae said, "The Gangnam branch generates 3 trillion won in sales and the main store more than 1 trillion won, and considering they are also flagship stores for foreign customers, the rebound after the renovation is expected to be strong."
In particular, the Gangnam branch, which completed its renovation during the third quarter, was not previously a store with large sales to foreign customers, but the share has been found to be rising rapidly recently, the analyst said.
The Shinsegae main store is scheduled to resume normal operations in the fourth quarter, and Bae projected that the reopening effect would be significant, given that the share of sales to foreign customers reached 20% before the renovation.
Bae said, "As the renovation and the base effect coincide, earnings growth next year appears comfortably achievable."