NH Investment & Securities on the 2nd said Hyundai Department Store is undervalued given the performance of its core department store and duty-free businesses. It kept a Buy rating and a target price of 130,000 won. Hyundai Department Store's previous closing price was 81,500 won.
Ju Young-hun, an analyst at NH Investment & Securities, said, "Growth in the department store industry remains strong, and Hyundai Department Store is also seeing related benefits," but added, "The recent share price has been weak, reflecting concerns about the poor performance of subsidiary ZINUS."
NH Investment & Securities said that while the prolonged slump at ZINUS is weighing on Hyundai Department Store's consolidation results, the current share price reflects excessive concern. Considering ZINUS's market capitalization and Hyundai Department Store's equity stake, its weight in the corporations value is not large.
Hyundai Department Store's current share price is just 8.4 times this year's price-earnings ratio (PER) on NH Investment & Securities estimates, suggesting the improved value of the department store and duty-free businesses is not being properly reflected. Analyst Ju saw the undervaluation appeal coming to the fore, with corporations value also likely to rebound.
For the first quarter of this year on a consolidation basis, Hyundai Department Store's net sales and operating profit are expected to meet consensus (the market average forecast) at 1.0221 trillion won and 101.6 billion won, respectively.
The analyst said, "Consolidation earnings will inevitably decline due to the fallout from subsidiary ZINUS's slump, but momentum in the core department store and duty-free businesses will be strong," adding, "We estimate same-store sales growth at department stores at 9%."
With consumer sentiment improving, domestic sales are rising, and the increase in inbound foreign visitors is adding to the effect, quarter-over-quarter sales growth is expected to expand.
The analyst said, "In addition to luxury, a recovery in the high-margin fashion category is expected to allow for improved profitability," adding, "For duty-free stores, we estimate the profit trend will continue under efficiency strategies."
However, after being selected as a new duty-free operator at Incheon Airport, related expense may occur starting in the second quarter. Still, because the rent burden is not large, the impact on companywide results was projected to be limited.