Korea Investment & Securities Co. said on the 27th that Hotel Shilla's share price is likely to continue a solid trend on the back of improving earnings at its duty-free and hotel businesses and expectations for a recovery in China's economy. The firm raised its investment opinion to "buy" from "neutral" and newly set a target price of 100,000 won. Hotel Shilla's closing price in the previous trading day was 62,300 won.
Kim Myeong-ju, an analyst at Korea Investment & Securities Co., said, "Thanks to the stronger yuan, fees for Chinese daigou such as customer-acquisition commissions have fallen, and the lower fees have continued through March to the present," and added, "Also, because a gradual recovery in China's economy is expected in the second half, the recovery in demand for Chinese cosmetics is expected to lead to higher daigou sales."
Hotel Shilla posted consolidated revenue of 1.0535 trillion won and operating profit of 20.4 billion won in the first quarter of this year. Revenue rose 8.4% from a year earlier, and operating profit swung to a gain.
As duty-free commission rates fell 2.0 percentage points from the previous quarter, the duty-free segment returned to operating profit, and the hotel segment also delivered solid results with operating profit of 8.2 billion won, up 228.0% from a year earlier, thanks to higher room rates.
Kim said, "As political tensions between China and Japan persist, Korea has become the most preferred overseas travel destination for Chinese travelers," and added, "If individual and group Chinese tourists at duty-free shops increase significantly, the value of Hotel Shilla's duty-free business will rise further."
In particular, the firm explained the reason for the upgrade, noting that considering China's macro indicators and the yuan's trend, the likelihood of commission rates in the duty-free industry rising again is limited.
Kim added, "While foreign tourist numbers have been steadily increasing recently, hotels in Seoul are absurdly scarce," and said, "As the shortage persists, the average check at higher-tier Hotel Shilla properties is also rising."