Kiwoom Securities on the 13th said Shinsegae is likely to show a strong trend of earnings improvement centered on department stores, helped by robust domestic consumer demand and an increase in foreign visitors to Korea. It maintained a Buy recommendation and raised its target price to 600,000 won. Shinsegae's previous closing price was 441,500 won.
On a consolidation basis, Shinsegae's first-quarter operating profit rose 50% on-year to 197.8 billion won, and net profit attributable to controlling shareholders increased 109% to 120.2 billion won, beating the market consensus (average estimate) by 18% and 53%, respectively.
Park Sang-jun, an analyst at Kiwoom Securities, said, "As foreign sales grew amid strong domestic consumer demand, profits at the department store business and Shinsegae International increased sharply," adding, "Duty-free profitability also improved much more than expected as downtown store discount rates were reduced."
In particular, operating profit in the department store segment increased by 33.1 billion won from a year earlier; excluding the impact of higher depreciation, the operating profit increase attributable to same-store sales growth was estimated at 46 billion won, up 43% on-year.
Park explained, "Buoyed by overall high sales growth and strength in high-margin fashion categories, operating leverage from sales growth appears to be expanding."
Strong results were also projected for the second quarter. Hana Securities forecast Shinsegae's second-quarter operating profit on a consolidation basis at 152.3 billion won, up 102% from a year earlier.
Park said, "Helped by strong results at major domestic corporations, a wealth effect from a bullish stock market, and high growth in foreign sales, department stores are seeing solid sales of luxury goods and fashion," adding, "Accordingly, the second-quarter same-store growth rate is expected to be on par with the first quarter, and operating profit in the department store segment will increase 48% from a year earlier."
In addition, with rent declining due to the withdrawal from Incheon Airport DF2 (cosmetics and perfume, liquor and tobacco), operating profit in the duty-free segment is expected to improve significantly starting this month.