Hanwha Investment & Securities on the 6th analyzed that BGF Retail is expected to improve profitability by closing underperforming convenience stores. It kept its "Buy (BUY)" rating and raised the target price to 180,000 won from 160,000 won. The previous trading day's closing price of BGF Retail was 133,900 won.
Hanwha Investment & Securities said BGF Retail in the first quarter this year is expected to post revenue of 2.0943 trillion won, up 3.9% from a year earlier, and operating profit of 28.2 billion won, up 24.6%, meeting the consensus (market average) on an operating-profit basis.
Drivers of BGF Retail's earnings improvement were cited as growth at existing stores and lower fixed costs.
Lee Jin-hyeop, an analyst at Hanwha Investment & Securities, said, "With consumption recovering, we estimate same-store sales growth at convenience stores in the first quarter this year rose 2.4% from a year earlier," and noted, "The pace of increases in fixed costs such as rent and depreciation is moderating."
It was analyzed that a strategy to improve earnings by closing underperforming stores will continue going forward.
The number of BGF Retail convenience stores is decreasing, but sales per store are rising on the back of improved consumer sentiment. The analyst said, "As consumer sentiment improves, the decline in the number of convenience stores continues, centered on lower-tier operators," and added, "According to the Ministry of Trade, Industry and Energy, the number of convenience stores in February fell 2.9% from a year earlier."
He added, "Conversely, sales per store rose 7.1% from a year earlier."
The analyst expected this strategy to continue going forward. Lee said, "This trend is likely to be observed throughout the year," and explained, "As underperforming stores are closed and other steps are taken, profitability is improving. Korea Seven's revenue last year fell 9% from a year earlier, but its operating loss narrowed by 15.8 billion won."
Lee added, "As the annual operating loss still stands at around 68.6 billion won, we judge it is highly likely the current strategy will be maintained," and said, "With quantitative growth constrained, qualitative growth will continue, and the convenience store operating leverage effect is expected to materialize in earnest."